UK Growth Slows to 0.4% in Q2 2026 as Energy Price Shock Bites

UK GDP grew by 0.4% in the three months to June 2026, down from a revised 0.6% in the first quarter, according to the Office for National Statistics The Guardian. The deceleration came as oil and gas prices surged following US military action against Iran at the end of February, feeding through into industrial stagnation and a rising consumer energy cost burden.

On a monthly basis, GDP grew by 0.3% in June alone, beating the flat reading City economists had forecast. That monthly uptick offers a partial offset to the broader quarterly slowdown, but does not reverse the underlying loss of momentum visible across the three-month rolling comparison.

The sectoral breakdown tells the core story. Services output expanded by 0.5% in Q2, after growing 0.6% in the three months to May (revised down from 0.7%). Construction grew by 0.3%. Industrial production was flat, following growth of 0.2% in the three months to May (revised up from 0.1%). The stalling of industrial output aligns with the energy price trajectory: oil and gas costs rose after the Trump administration's strikes on Iran in late February, and while the UK's retail energy price cap shielded consumers until July, that buffer has now expired. The cap jumped by 13% in July, passing elevated wholesale costs directly to households.

Within services, information and communication businesses grew by 2.7%, led by an upturn in computer programming. That concentration of growth in digital and tech-adjacent services echoes the Q1 pattern, where services contributed the largest share of GDP expansion, growing by 0.8% across all three sectors.

The first-quarter data, confirmed by the ONS on 30 June, showed real GDP growth of 0.6% — unrevised from the initial estimate published in May. Reuters independently confirmed that figure. Q1 2026 followed revised growth of just 0.1% in Q4 2025, a figure that came in below the 0.2% forecast by economists polled by Reuters and the Bank of England. For calendar year 2025, UK GDP grew by a revised 1.3% (down from a previous 1.4%), following 1.0% growth in 2024.

The ONS time series places UK chained volume measure GDP at £712,545 million for 2026 Q2, with year-on-year growth of 1.2%. GDP at current market prices stood at £786,629 million for the quarter. The next release is scheduled for 30 September 2026.

Looking at the inflation outlook, UK CPI for July 2026 is expected to come in above June's 2.6%, reflecting the utility bill increases that took effect at the start of the month. The combination of slowing growth and rising inflation narrows the policy space available to Chancellor John Healey, who is due to present his first budget on 28 October 2026. Andy Burnham announced a VAT cut for electricity bills in July, though the fiscal mechanics and timeline of that measure remain to be detailed.

The broader context here is a UK economy caught between a geopolitical energy shock and a domestic fiscal calendar that offers limited room for early intervention. The Q1-to-Q2 slowdown from 0.6% to 0.4% is not, in isolation, a dramatic contraction. But the composition matters: growth is increasingly concentrated in digital services while industrial output stalls and household energy costs step up sharply. The 13% utility price cap increase in July is the mechanism through which the Iran-related energy disruption reaches consumer balance sheets, and July inflation data will be the first clear read on that transmission. If services growth begins to soften under the weight of household cost pressures, the narrowness of the current expansion becomes a more pressing concern for the Treasury ahead of the October budget.

The quarterly national accounts released on 30 June revised Q4 2025 growth down to 0.1% and 2025 annual growth down to 1.3%, suggesting the pre-existing momentum was weaker than initially assessed even before the energy price shock fed through. The June monthly figure of 0.3% growth, against a consensus of zero, suggests some residual resilience — but a single month's outperformance does not offset a quarter in which the growth rate fell by a third relative to Q1.