UK Economic Growth Slows As Rising Energy Prices Hit UK 2026

Key Points

• Gross domestic product (GDP) expanded by 0.4% in the second quarter (April to June) of 2026, marking a slowdown from 0.6% growth recorded in the first quarter.
• Official figures from the Office for National Statistics (ONS) show that monthly output rebounded unexpectedly by 0.3% in June, outperforming consensus forecasts of flat growth.
• Output across the services sector expanded by 0.5% over the three-month period, driven by a 2.7% surge in information and communication, whilst construction grew by 0.3% and industrial production remained flat.
• Economists attribute June’s unexpected uptick to a temporary respite in energy prices during a brief Gulf ceasefire, alongside warm summer weather and elevated retail and hospitality spending.
• Yael Selfin, chief economist at KPMG, warned that whilst consumers weathered early shocks remarkably well, economic momentum is likely to fade in the second half of the year.
• Chancellor of the Exchequer John Healey is preparing his first official budget, scheduled for delivery on 28 October 2026, against a backdrop of slowing momentum and elevated energy costs.

London (Bristol Express News) August 13, 2026 – Economic expansion in the United Kingdom slowed during the second quarter of the year as rising energy prices linked to ongoing military conflict involving Iran began to constrain output across key sectors, official statistics have revealed. According to the Office for National Statistics (ONS), gross domestic product (GDP) grew by 0.4% in the three months to June, softening from the 0.6% expansion achieved in the opening quarter of the year. Despite the headline deceleration, the quarterly figure matched City forecasts and demonstrated greater underlying resilience than many analysts had initially predicted in the immediate wake of Middle Eastern supply disruptions.

As reported by Heather Stewart of The Guardian, the macroeconomic slowdown coincided with volatile wholesale energy costs triggered by international conflict, which placed upward pressure on operational expenses for commercial enterprise and household energy tariffs.

Nevertheless, an unexpected 0.3% uptick in monthly output during June helped prevent a sharper quarterly contraction. The ONS reported that a temporary ease in geopolitical tension alongside seasonal factors provided a mid-summer lift to domestic service providers and consumer spending.

How Did Individual Sectors Perform In The Second Quarter?

As reported by Sarah Taaffe-Maguire of Sky News, the overall 0.4% economic expansion between April and June was predominantly sustained by the service sector, which represents roughly four-fifths of total UK output. Services activity rose by 0.5% across the quarter, anchored by notable strength in technology and professional services.

Within this category, information and communication recorded the steepest trajectory, expanding by 2.7% over the quarter, largely propelled by increased activity in computer programming and digital consultancy.

In contrast, other core industries experienced stagnant or deteriorating conditions. The ONS data indicates that construction output managed a modest 0.3% expansion over the quarter, though month-on-month figures revealed a 0.1% decline in June as elevated material costs and borrowing rates weighed on building activity.

Industrial production, which encompasses manufacturing, mining, and utilities output, remained flat at 0.0% across the three months to June.

On a single-month basis, industrial production fell by 0.2% in June, underscoring the ongoing operational pressure faced by heavy industry and manufacturing firms exposed to volatile global fuel markets.

Why Did June Economic Output Rebound Unexpectedly?

As reported by William Schomberg of Reuters, month-on-month gross domestic product increased by 0.3% in June, contrasting sharply with Reuters polls of City economists who had anticipated zero growth. The ONS reported that fewer businesses explicitly cited disruption from the Middle East conflict during June compared to previous months, coinciding with a brief period of ceasefire in the region that temporarily stemmed the rise of imported fuel costs.

The single-month rebound was further sustained by non-geopolitical factors, including warm weather and high-profile sporting events that boosted domestic consumer activity. Services output increased by 0.4% in June alone.

Commentary provided by Sanjay Raja, chief UK economist at Deutsche Bank, noted that households spent significantly more than anticipated during the month. Raja stated that warmer weather prompted consumers to ramp up discretionary spending, whilst major sporting tournaments buoyed retail, hospitality, and advertising revenues across the nation.

What Do Leading Economists Predict For The Second Half Of The Year?

Despite the positive close to the second quarter, economic forecasters maintain that the second half of the year presents substantial headwinds for the UK economy. As reported by Heather Stewart of The Guardian, Yael Selfin, chief economist at KPMG, highlighted that whilst British households have demonstrated fortitude against persistent financial pressure, underlying momentum is expected to cool down.

Selfin stated that consumers have faced a series of shocks since the start of the year but have weathered them remarkably well.

However, she warned that the second half of the year was likely to be weaker, adding that whilst the UK economy closed out the first half of the year on strong footing, momentum is likely to fade over the coming months as delayed energy price spikes feed into consumer bills and corporate overheads.

Responding to the official data release, Chancellor of the Exchequer John Healey acknowledged both the strength of the initial half-year performance and the urgent need to sustain local productivity.

Healey stated that the nation had seen the fastest growth in the G7 this year, but emphasized that the government now needs to double down and drive growth in every postcode as preparations begin for the forthcoming Treasury budget on 28 October 2026.

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What Is The Background To This Economic Development?

The deceleration in second-quarter GDP follows a turbulent economic cycle characterized by fluctuating energy markets and geopolitical instability in the Middle East. At the start of 2026, the UK economy experienced an initial surge in growth, registering a 0.6% expansion in the first quarter as inflation receded from previous highs and consumer confidence began to repair.

However, the onset of escalated military hostilities involving Iran disrupted global shipping lanes and oil supply routes, precipitating sharp increases in crude oil and natural gas prices worldwide.

As a net importer of fossil fuels, the UK economy experienced immediate secondary effects. Wholesale gas prices spiked during the spring, increasing operating expenses for domestic energy providers and raising production costs across energy-intensive industrial sectors.

International policy bodies, including the OECD, downgraded UK growth projections, citing planned fiscal tightening and higher power expenses as primary inhibitors to sustained expansion.

Although temporary ceasefires and seasonal consumer demand mitigated the downturn in June, fundamental inflationary pressures linked to global commodity volatility remain integrated into the macroeconomic framework as the Treasury prepares its autumn fiscal statement.

How Will This Economic Slowdown Affect UK Businesses And Households?

The current trajectory of slowing economic expansion alongside elevated energy prices carries specific consequences for commercial enterprises and domestic households across the United Kingdom.

For UK businesses, particularly small and medium-sized enterprises (SMEs) in energy-intensive sectors such as manufacturing, transportation, and brick-and-mortar retail, the combination of flat industrial production and volatile wholesale power prices threatens profit margins.

Companies face elevated input costs that cannot easily be passed on to price-sensitive consumers, potentially leading to a curtailment in capital investment, deferred recruitment drives, and tighter operational budgets throughout the autumn.

Conversely, firms in digital technology, software development, and specialized professional services are expected to remain relatively sheltered, maintaining positive output due to structural demand for digital transformation.

For UK households, the economic deceleration directly impacts real disposable income and spending power. While resilient consumer spending in hospitality and retail temporarily supported June output, the ongoing transmission of high wholesale energy prices into domestic utility bills risks squeezing household budgets. Higher living costs, coupled with cautious borrowing environments maintained by commercial lenders, are likely to restrict non-essential household expenditure.

As Chancellor John Healey prepares his October budget, taxpayers and business owners face a period of fiscal adjustment, where national policy will focus on balancing inflation control against measures designed to stimulate local commercial activity.