The UK economy expanded by 0.4 per cent between April and June 2026, according to official data from the Office for National Statistics (ONS), indicating that businesses and consumers have so far weathered the worst economic shocks stemming from the war in Iran.

The second-quarter growth figure matched analysts' expectations, but was accompanied by an unexpected 0.3 per cent rise in June, outperforming forecasts. May's figures were revised downward from 0.1 per cent growth to zero growth.

City economists surveyed by Bloomberg had forecast second-quarter growth of 0.4 per cent and anticipated that June would show a 0.1 per cent contraction in total output.

The services sector, which accounts for roughly four-fifths of UK economic output, drove growth over the three-month period, expanding by 0.5 per cent. Production remained flat with no change from the first quarter, while the construction sector posted a modest 0.3 per cent gain.

The data suggests that businesses and consumers have shown resilience against price shocks triggered by the war in Iran, which has driven up oil prices and threatens to stoke inflation later in 2026. The UK's exposure is heightened by its status as a net importer of oil and gas, meaning energy price movements feed relatively quickly through to consumer prices and business costs. However, analysts cautioned that the economy benefited from one-off factors including the World Cup and a series of heatwaves.

George Brown, senior economist at Schroders, acknowledged that the UK economy had proven "resilient" but added that he suspected "seasonal quirks are flattering activity in the first half of the year, with growth likely to lose some steam later in 2026."

Yael Selfin, chief economist at KPMG, said "temporary tailwinds are likely to fade, and higher prices continue to squeeze households' purchasing power."

"Growth is expected to moderate in the coming months as the impact of higher prices and borrowing costs filter through to households and businesses," Selfin said. She added that the growth figures indicated consumers had enjoyed high temperatures and handled recent economic shocks "remarkably well."

The ONS noted that "sporting events," widely interpreted as a reference to the World Cup, had boosted consumer spending.

"Growth slowed in the second quarter of the year, following a strong start to 2026, but remained relatively robust," said Liz McKeown, director of economic statistics at the ONS.

Second-quarter growth was slower than the 0.6 per cent GDP increase recorded in the first three months of 2026.

Government Warned of Economic Risks

The deceleration in output and activity places pressure on Prime Minister Andy Burnham and Chancellor John Healey ahead of a challenging Budget.

According to Bloomberg, senior ministers were warned by the Treasury that the UK economy's prospects hinge largely on President Trump's and Iran's actions across the Middle East and the reopening of the Strait of Hormuz. The strait is one of the world's most critical energy chokepoints, handling roughly a fifth of global oil consumption. The Treasury reportedly cautioned that the UK economy would grow by just 0.3 per cent if the strait remained blocked for the remainder of the year.

The Bank of England has also indicated it would raise interest rates if the blockade persists through year-end. Such a move would raise borrowing costs for mortgage holders and businesses at a time when households are already contending with elevated prices.

Independent forecasters have outlined similarly grim scenarios. Economists at EY warned that the UK could slip into recession if oil and gas supplies fail to move through the Gulf region, which accounts for approximately one-fifth of global supplies.

Recent data indicates that government spending has been a significant contributor to growth. Healey faces pressure from industry leaders to deliver a confidence-boosting Budget against an increasingly gloomy economic backdrop.

Devolution is expected to be a central policy in the Budget, with the Chancellor having previously backed regional investment bodies to stimulate growth.

However, economists at Capital Economics warned that reduced fiscal headroom combined with spending commitments on energy policy support and defence could force Healey to raise approximately £25 billion in taxes.

Political Reactions

Responding to the growth data, Chancellor John Healey said: "I know people are worried about the impact of the conflict in the Middle East on their cost of living, which has been too high for too long and it has added pressure on British businesses."

"This is an active, hands-on government, putting British interests first – giving breathing space to those feeling the strain, making our country more resilient and bringing hope back," Healey continued.

"We've seen the fastest growth in the G7 this year, but we now need to double down and drive growth in every postcode."

Shadow Chancellor Sir Mel Stride offered a sharply different assessment: "Our economy is struggling because Labour have no plan for growth."

"Labour have mismanaged the economy with their tax and borrowing spree, leaving it weak and vulnerable to the effects of shocks like the Iran War," Stride said.

"Yet Andy Burnham is gearing up to tax and borrow even more, doubling down on those failures."