UK economic growth slowed in the second quarter of the year but proved more resilient than expected in the face of the ongoing Middle East conflict.
The Office for National Statistics (ONS) reported that GDP grew by 0.4% in the three months to June – down from 0.6% in the first quarter.
In May, the International Monetary Fund (IMF) forecast 1% growth for the UK economy in 2026. Second-quarter GDP growth suggests the country is on track to beat this forecast.
While this technically marks a slowdown, market experts noted the domestic economy has weathered the geopolitical storm better than expected.
David Smith, manager at Henderson High Income, said: “Despite concerns around the Middle East conflict and inflation, consumer-facing sectors held up well and helped offset continued weakness in manufacturing.”
However, some caution is warranted. The longer the conflict in the Middle East rages on, the more pressure will be placed on energy prices, which will add pressure on households as they rein in their spending. This would have a knock-on effect on growth.
George Brown, senior economist at Schroders, also noted that seasonal quirks have likely “flattered” activity in the first half of the year and that growth may lose its momentum amid uncertainty ahead of the Budget on 28 October.
“As momentum fades, we see little reason why the labour market would break out of its current soft equilibrium, limiting the chance that external shocks translate into broader domestic inflation pressures,” Brown said.
“That should give the Bank of England confidence inflation risks remain contained for now.”
However, a more expansionary fiscal stance under the new chancellor could eventually force the Bank back into tightening mode towards the end of next year, Brown warned.