Britain’s economy recorded a modest expansion in the second quarter of 2026, but official and government sources cautioned that the recent resilience may be temporary if disruption from the Middle East conflict continues.
Q2 growth driven by services, sport and sunshine
The Office for National Statistics reported gross domestic product rose by 0.4% in the three months to June, with activity in June itself stronger-than-expected at 0.3%. The rise came despite a weaker start to the quarter: April saw a 0.1% contraction while May was revised to flat growth.
ONS data showed that the expansion was concentrated in the services sector and construction. Services grew by 0.5%, construction by 0.3%, while production was broadly unchanged (0.0%).
| Period | GDP change |
|---|---|
| April | -0.1% |
| May | 0.0% (revised) |
| June | +0.3% |
| Q1 2026 (previous) | +0.6% |
| Q2 2026 | +0.4% |
The ONS highlighted that household-facing industries benefited from two temporary but notable factors. The FIFA World Cup, which began on 11 June and saw England reach the semi-finals, provided a boost to food and drink, television and advertising revenues. In parallel, an extended spell of hot weather encouraged spending in retail, some manufacturing, hotels and leisure and amusement venues.
Downside risks from the Iran conflict
Alongside those encouraging signals, Treasury briefings and internal modelling have intensified concern over the near-term outlook. Officials have told ministers that if disruption linked to the Iran war — notably affecting traffic through the Strait of Hormuz — persists through the end of 2026, UK economic growth could be severely curtailed.
According to government sources, Treasury projections indicate that GDP growth could be as low as 0.3% in 2027 under continued disruption scenarios. Independent forecasters and economists warn that the apparent second‑quarter resilience may give way to a much weaker finish to the year as higher energy and fuel costs filter through to consumers and businesses.
“Growth will be very weak in the second half as energy price hikes and soaring fuel costs weigh on consumer spending,”
The cautionary tone was echoed by analysts who noted that the second-quarter figures partly reflect one‑off boosts rather than a durable acceleration of underlying demand.
- Temporary drivers: World Cup-related spending and warm weather lifted leisure, hospitality and retail turnover.
- Sectoral performance: Services led growth; production remained flat while construction contributed modestly.
- Key risks: Prolonged disruption to oil and shipping routes linked to the Iran war, higher energy and transport costs, and weaker consumer spending in H2 2026.
Implications for policy and households
The picture presents a policy challenge for ministers and the Bank of England. On one hand, the data show a continuation of growth, which could ease immediate pressure on public finances and signal that the economy can absorb some price shocks. On the other hand, government modelling pointing to a sharp slowdown next year raises questions about fiscal planning and the need for contingency measures should global energy market conditions worsen.
For households, the risk is that the temporary lift to spending seen in June will be offset by rising living costs later in the year. Businesses heavily exposed to transport and energy costs — notably logistics, manufacturing and some services — may see margins compressed, with potential knock-on effects for employment and investment decisions.
While the second-quarter figures provide a degree of reassurance that the economy remained “relatively robust” in the face of international turbulence, the balance of evidence from Treasury briefings and independent forecasters suggests the outlook is fragile and contingent on developments in the Middle East and global energy markets.
Policymakers will be watching incoming data closely in the months ahead to determine whether the recent resilience can be sustained or whether the economy will slow markedly as the year closes.
