UK economy has expanded faster than previously estimated in the second quarter of 2026, with stronger services activity helping offset some of the economic disruption linked to the war in Iran.
Official figures from the Office for National Statistics (ONS) showed gross domestic product (GDP) increased by 0.5% between April and June, up from the initial estimate of 0.4%.
The upward revision was largely driven by stronger-than-expected output in the services sector, which remains the main engine of the British economy.
The latest figures mean the economy maintained the momentum recorded at the beginning of the year, following a 0.6% expansion during the first quarter. The consecutive quarterly increases indicate that the UK economy entered the middle of 2026 with greater resilience than some earlier forecasts had suggested.
However, the improved second-quarter performance comes against a more complicated economic backdrop. While stronger services activity supported growth during the quarter, rising energy and fuel prices linked to the war in Iran are expected to place renewed pressure on households and businesses during the second half of the year.
The combination of higher energy costs, expensive fuel and uncertainty surrounding the government’s upcoming Budget could weaken consumer spending and business activity, potentially limiting the economy’s ability to maintain the pace recorded during the first half of the year.
The ONS also revised its assessment of the wider economic performance in 2025, reducing estimated annual growth from 1.3% to 1.2%. The revisions indicate that although the economy expanded, the underlying pace of growth was slightly weaker than previously believed.
According to Liz McKeown, ONS Director of Economic Statistics, “growth for 2025 as a whole was a little lower than previously estimated, with the profile of growth across the quarters also revised.”
“However, stronger services growth in the latest quarter means the economy is now slightly larger than previously estimated.”
Liz McKeown
The contrasting revisions underline the mixed picture facing the British economy. On one hand, the latest quarterly figures suggest that output has been stronger than initially calculated. On the other, the downward revision to 2025 growth points to a weaker underlying performance than earlier data had indicated.
Energy Costs Threaten to Weigh on UK Growth
The economic outlook for the second half of 2026 is becoming more difficult as the effects of the Iran war feed into international energy markets.
Higher oil and gas prices have increased concerns about the cost of fuel and household energy, creating a potential drag on consumer spending at a time when economic growth remains relatively modest.
Analysts at Cornwall Insight warned that annual household energy bills could rise by 16% in January, which would represent the largest increase in four years.
Such an increase has wider consequences on the economy. Higher household energy costs reduce the amount of disposable income available for other spending, while increased fuel prices can raise transportation and operating costs for businesses.
Against this backdrop, economists have largely maintained expectations of approximately 1.2% growth for the UK economy across the whole of 2026.
Martin Beck, Chief Economist at WPI Strategy, indicated that such a forecast would imply “virtually no expansion over the second half of this year.”
“High petrol prices, rising household energy bills and uncertainty ahead of the Budget are likely to take some momentum out of growth over the coming months.”
Martin Beck
This places greater importance on the government’s forthcoming Budget, with households and businesses watching for measures that could either support economic activity or add to existing financial pressures.
The government’s fiscal decisions will also be assessed against the broader challenge of generating stronger economic growth while managing public finances.
The latest data nevertheless provide some evidence that the economy entered the second half of the year from a stronger position than previously assumed.
A more significant question is whether the economy can maintain its underlying momentum once those temporary supports fade.
The latest figures point to an economy navigating between signs of resilience and mounting headwinds.
Stronger second-quarter growth, an improved services performance and July’s rise in output offer some support, but the downward revision to 2025 growth and higher energy prices complicate the outlook.
How the economy performs through the rest of 2026 will depend on household demand, business investment, energy costs, government decisions and conditions in the wider global economy.
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