The UK economy grew by 0.4% quarter-on-quarter in the second quarter, a relatively steady performance that suggests businesses are weathering various risks, including a surge in energy prices linked to the Gulf situation.
This data, released by the Office for National Statistics on Thursday, aligned with the expectations of market analysts, though it represents a slowdown from the 0.6% growth recorded in the previous quarter.
Looking at June alone, GDP rose by 0.3% month-on-month. In a revision, the initial reading of 0.1% growth for May 2026 was adjusted down to zero growth.
The economic figures offer reassurance to new Prime Minister Andy Burnham as he focuses on achieving balanced growth across all regions and tackling the cost-of-living crisis.
The Bank of England's latest forecast projects full-year economic growth of 1.1% for the UK, slightly below the 1.3% growth rate recorded in 2025.
Despite the expansion, rising inflation is set to squeeze household real incomes this year. The Bank of England predicts the inflation rate will climb from its current 2.6% to 3.2% by year-end.
Meanwhile, the ongoing conflict related to Iran continues to pose a risk to the UK economy. Sources familiar with internal Treasury modelling indicate that if disruptions to shipping in the Strait of Hormuz persist until the end of the year, UK economic growth in 2027 could be dragged down to just 0.3%.
Following the data release, the British pound sterling held steady against the US dollar at £1 to $1.35.
George Brown, Senior Economist at Schroders, commented: "Considering the disruption from the Middle East conflict, the UK economy has shown more resilience than many market participants expected."
However, he added that seasonal factors likely inflated the reported Q2 growth figure, and that momentum is expected to gradually fade through the remainder of the year.
The UK economy has a well-established pattern where quarterly GDP readings are typically stronger in the first half of the year, while growth generally weakens in the second half.
The second-quarter expansion was primarily driven by the services sector, which dominates the UK economy, growing by 0.5% quarter-on-quarter. The information and communication industry, along with professional and scientific output, were the two main contributors to the sector's growth.
The construction sector grew by 0.3% quarter-on-quarter, while industrial production was flat. Real GDP per capita rose by 1% compared to the same period last year.
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