Why Did the UK Economy Slow Down This Summer?

The UK economy grew more slowly from April to June 2026. According to the Office for National Statistics, growth was 0.4% during those three months, down from 0.6% in the first three months of the year. The slowdown came after oil and gas prices shot up when the US military struck Iran at the end of February. Those higher energy prices made it more expensive for factories to operate and pushed up household energy bills.

In June alone, the economy grew by 0.3%, which was better than the zero growth that economists had predicted. That single-month improvement helps a little, but it does not cancel out the broader slowdown across the full quarter.

Looking at different parts of the economy tells the main story. Services — which include things like banking, restaurants, and technology — grew by 0.5% in the second quarter, after growing 0.6% in the three months to May (revised down from 0.7%). Construction grew by 0.3%. Industrial production, which covers factories and manufacturing, was flat, after growing 0.2% in the three months to May (revised up from 0.1%). The stalling of factories lines up with what happened to energy prices: oil and gas costs rose after the Trump administration's strikes on Iran in late February.

The UK has something called an energy price cap — a government limit on how much energy companies can charge households. That cap protected consumers until July, but it has now expired. In July, the cap jumped by 13%, meaning households are now paying the higher wholesale energy costs directly.

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 services mirrors what happened in the first quarter, when services contributed the largest share of economic growth, rising by 0.8% across all three sectors.

The first-quarter data, confirmed by the ONS on 30 June, showed growth of 0.6% — unchanged from the first estimate published in May. Reuters independently confirmed that figure. The first quarter of 2026 followed growth of just 0.1% in the last quarter of 2025, which was below the 0.2% that economists polled by Reuters and the Bank of England had forecast. For all of 2025, UK growth was 1.3% (revised down from 1.4%), following 1.0% growth in 2024.

The ONS placed the total size of the UK economy at £712,545 million for Q2 2026 when adjusted for inflation, with year-on-year growth of 1.2%. Measured at current prices, the figure was £786,629 million for the quarter. The next data release is scheduled for 30 September 2026.

Inflation — the rate at which prices rise — is expected to climb above June's 2.6% when July figures come out, because of the utility bill increases that started at the beginning of the month. The combination of slowing growth and rising inflation leaves Chancellor John Healey with fewer options as he prepares his first budget, due on 28 October 2026. Andy Burnham announced a cut to VAT (a tax on goods and services) for electricity bills in July, though how and when that will work has not yet been detailed.

The broader context here is a UK economy squeezed between an energy shock triggered by a war abroad and a domestic schedule that leaves little room to act quickly. The drop from 0.6% to 0.4% growth is not a dramatic collapse on its own. But the shape of that growth matters: more and more of it comes from digital services, while factories stall and household energy costs jump. The 13% energy cap rise in July is how the Iran-related energy disruption reaches people's wallets, and the July inflation data will be the first clear signal of that effect. If services growth starts to slow under the weight of household cost pressures, the narrowness of the current expansion becomes a bigger worry for the Treasury ahead of the October budget.

The national accounts released on 30 June revised the last quarter of 2025 down to 0.1% growth and 2025 annual growth down to 1.3%, suggesting the economy had less momentum than originally thought even before the energy price shock hit. The June monthly figure of 0.3% growth, against a prediction of zero, shows some resilience — but one good month does not make up for a quarter in which the growth rate fell by a third compared to the first quarter.