Key facts
- UK GDP grew 0.4% in the three months to June, following 0.6% in Q1.
- Consumer spending rose 0.3% and business investment jumped 1.7% in the latest period.
- Analysts attribute some of the IT sector's investment growth to AI computing power build-out.
- Deutsche Bank forecasts 1.1% annual growth, exceeding the IMF's 0.8% prediction.
- Rising energy bills from July, following the end of summer, are expected to impact household finances.
The UK economy has shown unexpected resilience in the first half of 2026, defying earlier forecasts of significant economic headwinds due to the Iran war. Official figures from the Office for National Statistics reveal that GDP growth slowed to 0.4% in the three months to June, a predicted slowdown following a robust 0.6% growth in the first quarter. Monthly figures for June indicated growth of 0.3%, surpassing expectations of stagnation.
This unexpected strength has led many City analysts to anticipate upward revisions to their economic forecasts for the year. Deutsche Bank, for instance, estimates annual growth at 1.1%, a notable increase from the IMF's spring projection of 0.8%. Factors contributing to this resilience include sustained consumer spending, up 0.3%, and a significant 1.7% jump in business investment. Analysts suggest that investments in the IT sector, particularly in building computing power for artificial intelligence, played a role.
However, this positive trend may not persist. Consumers have been somewhat insulated from rising global oil prices and domestic energy costs due to lower summer demand and the Ofgem energy price cap. This cap is set to increase by 13% from July, a move experts warn could lead to millions of households facing fuel poverty. While measures like Chancellor John Healey's proposed VAT cut on electricity are intended to offer relief, elevated headline inflation and depleted household savings present ongoing challenges.
Furthermore, continued geopolitical tensions in the Middle East could keep global oil prices high, exacerbating energy cost pressures. These uncertainties also pose a risk to business investment. Chancellor Healey faces the complex task of funding support measures for households and businesses while also accommodating increased defense spending and the Prime Minister's priorities for housing and infrastructure within fragile public finances. Leaked Treasury forecasts, predating the latest data, suggested 0.9% growth for the year, indicating that persistent weaker growth and higher inflation could complicate fiscal planning.