UK GDP: Still surprisingly robust

As expected after a strong start to the year, UK GDP cooled a bit to 0.4% quarter-on-quarter in the second quarter. That was in line with consensus, but still a relatively robust pace of growth by recent UK standards. That came despite a small contraction in April and no growth in May month-on-month. June GDP grew 0.3% month-on-month (much stronger than the -0.1% expected) which bodes well for third quarter GDP growth too.

Investment and consumer spending support growth

Looking at the detail for the second quarter, consumer spending rose 0.3% quarter-on-quarter (consensus: 0.2%) after 0.6% quarter-on-quarter, government spending fell -0.3% after growing 1.3% in the first quarter (likely exaggerated by school closures during the heatwave), and gross fixed capital formation (investment) was especially strong, up 1.2%. Within the latter, business investment rose 1.7% (though these figures can be heavily revised from these initial estimates). 

All about services

Looking at GDP from an output rather than spending perspective, the main driver was services, especially ‘information and communication’ – and within that ‘computer programming, consultancy and related services’ – and professional, scientific and technical activities, driven by advertising/market research, scientific research and development and legal activities. It is tempting to say that the UK may be getting a bit of an AI boost here but via services rather than manufacturing and construction (as is the case in some economies). But that is difficult to pin down looking at these broad categories. The World Cup and weather effects may also have played a role (at least in late in the quarter).

UK GDP and PMI business survey

Source: LSEG Datastream at 30/06/2026

Difficult to draw implications for the Bank of England

The Bank of England (BoE) has been focusing somewhat on ‘underlying’ GDP alongside this, which they build up from business surveys. While it was expecting headline GDP of 0.3% quarter-on-quarter in the second quarter the BoE had estimated ‘underlying GDP’ at only 0.1%, partly reflecting “a continuation of weak momentum prior to the Middle East conflict, consistent with subdued household and business confidence.” With the improvement in the PMI business surveys, it may be that the two series converge more in the third quarter. In the meantime, this makes it challenging to draw any implications from today’s data for the BoE. 

Our UK GDP forecast for 2026 of 0.8% looks too conservative and it makes sense to revise up to around 1.2%.

2026 UK GDP likely to come in stronger than we’d expected

After today’s and June figures, and looking at the business surveys for July, our UK GDP forecast for 2026 of 0.8% looks too conservative and it makes sense to revise up to around 1.2%. That builds in an assumption of slower growth in the third quarter and the fourth quarter partly given that household energy bills only reflected the Middle East conflict in July (which will have held back some of the energy shock from the economy).

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