UK economy grows faster than expected in first half of 2026, but risks loom
Despite the shock from the Iran war, the UK economy remained the fastest-growing in the G7 during the first half of 2026, though analysts warn the resilience may not last into autumn.
Britain's economy has outperformed the gloomy forecast the International Monetary Fund issued last spring, when it warned the UK would suffer the heaviest blow among advanced economies from the war in Iran. New figures from the Office for National Statistics show the UK held onto its position as the fastest-growing economy in the G7 for the first half of 2026.
GDP growth eased to 0.4% in the second quarter, following a stronger 0.6% expansion in the first three months of the year. Monthly data for June showed 0.3% growth, beating expectations of no growth at all. Warmer weather and England's men's football team reaching the World Cup semi-final helped lift consumer spending by 0.3%, while business investment jumped 1.7%, partly attributed to IT sector activity linked to building out computing capacity for artificial intelligence.
The stronger-than-expected performance is likely to prompt economists to raise their annual forecasts. Deutsche Bank now estimates 1.1% growth for the year, well above the IMF's spring forecast of 0.8%. The news is welcome for new chancellor John Healey ahead of his first budget on 28 October, and offers some vindication for his predecessor, Rachel Reeves.
Reasons for caution
Analysts caution the resilience may not hold. The period covered by the latest data fell before household energy bills rose, as consumers were shielded by lower summer energy demand and the Ofgem price cap. That cap jumped 13% from the start of July, a change experts warn could push millions of households into fuel poverty. Andy Burnham has announced relief measures, including a VAT cut expected to lower average electricity bills by £45 a year from October, but overall inflation remains elevated.
Continuing volatility in the Middle East and elevated global oil prices could add further pressure on energy costs and dampen business investment. Healey also faces the challenge of funding cost-of-living relief alongside higher defence spending and new priorities such as housing and infrastructure, complicated by leaked Treasury forecasts showing growth of just 0.9% this year — below the Office for Budget Responsibility's March forecast of 1.1%.
