The UK economy grew by 0.4% in the second quarter of 2026, according to the Office for National Statistics (ONS), indicating resilience despite challenges from the ongoing war in Iran. This growth, although a slowdown from the 0.6% increase in the first quarter, was slightly better than expected, as analysts had predicted no growth for June. The economy expanded 1.2% compared to the same quarter last year.
Key Details
Services, which make up the largest part of the economy, increased by 0.5% in the second quarter, with the information and communication sector leading the way, growing by 2.7%. However, production remained flat, and the construction sector expanded only by 0.3%. The ONS noted that the growth figures were buoyed by one-off events, including the World Cup and favorable weather conditions.
Yael Selfin, chief economist at KPMG, acknowledged that consumers have faced multiple shocks but have managed to cope effectively. However, she warned that the economy is likely to lose momentum in the second half of the year due to the impact of rising prices and borrowing costs. The implied GDP deflator, a measure of domestic price pressure, rose by 2.9% compared to the previous year, reflecting the inflationary pressures stemming from the conflict in Iran.
Background
The new chancellor, John Healey, is set to present his first budget on October 28, amid rising energy prices that have affected business confidence and household costs. Local officials have suggested that further measures may be needed to support consumers facing high utility bills, which were capped until July.
Related coverage: BP Posts $5.73 Billion Profit Amid Iran War Energy Surge, Gas Prices Surge Ahead of Winter Amid Iran War Supply Fears.
The rising energy prices resulting from the Iran conflict could pressure household budgets and business costs, potentially impacting consumer spending and economic growth in the coming months. Investors will watch for the upcoming budget announcement on October 28, which may address these challenges.
Based on reporting by: cityam.com, proactiveinvestors.co.uk