UK Q2 Economic Growth Slows to 0.4% Amid Weakening Energy Cost Momentum

According to preliminary data released by the UK Office for National Statistics (ONS), the UK's GDP grew by 0.4% quarter-on-quarter in the second quarter of 2026, a slowdown from the robust 0.6% growth recorded in the first quarter, in line with economists' general expectations.

Although quarterly growth cooled, June's monthly GDP surprised with unexpectedly strong performance, rising 0.3%, outperforming earlier market forecasts of stagnation or slight contraction, helping offset weaker early-quarter results.

By sector, services remained the main engine of economic growth, expanding 0.5% this quarter. Information and communication led the way with a 2.7% rise (driven primarily by computer programming), while professional, scientific, and technical activities also grew 1.7%. Additionally, construction rose 0.3%, supported by new projects and maintenance work.

However, industrial production overall stagnated at 0.0%, as gains in manufacturing were offset by declines in utility output such as electricity, gas, and water supply.

On the expenditure side, gross fixed capital formation (investment) rose significantly by 1.2%, while household consumption increased by 0.3%. Government consumption fell by 0.3%, partly reflecting reduced education spending due to school closures during June's heatwave. Meanwhile, real GDP per capita—a measure of living standards—rose 0.4% this quarter and 1% year-on-year.

While the data shows some resilience, soaring energy costs triggered by Middle East conflict (Iran war) are beginning to pressure the UK economy. The unexpected June growth was partly attributed to the World Cup and hot weather boosting retail, hospitality, and advertising revenues, but economists warn this momentum 'may fade over the coming months'.

With the energy price cap jumping 13% in July and inflation expected to exceed June's 2.6% in July, consumer-side pressures will continue to mount.

New Chancellor John Healey is set to deliver his first budget on October 28, facing warnings from the British Chambers of Commerce (BCC) about heavy business costs and constrained long-term growth. Healey stated the government will take an 'active, hands-on' approach, prioritizing UK interests and strengthening national economic resilience.