GDP grew by 1% in the first half of the year, marking the strongest performance for the same period since 2024! Three short-term benefits support the UK's GDP, while energy and war become the biggest variables for the second half of the year.

Thanks to high temperatures, the Men's Football World Cup, and a temporary ceasefire in the Middle East conflict that alleviated energy prices, the UK economy unexpectedly expanded in June, marking the end of another quarter of robust growth. Data released by the Office for National Statistics (ONS) on Thursday showed that the UK's gross domestic product (GDP) grew by 0.3% month-on-month in June, surpassing economists expectations of a decline of 0.1%, with May's growth rate revised down to zero. This brought the country's second-quarter GDP growth to 0.4%, in line with market expectations but slightly below the first quarter's 0.6%. Cumulatively, the UK economy grew by 1% in the first half of 2026, the strongest performance for the same period since 2024. From a sectoral perspective, service sector output grew by 0.4% month-on-month in June, while industrial output fell by 0.2% and construction output decreased by 0.1%. Overall, in the second quarter, service sector output grew by 0.5%, construction by 0.3%, and industrial output remained nearly flat. Per capita GDP in the second quarter increased by 0.4%. The ONS reported that industries such as information technology, professional and technical services, computer programming, advertising, and pharmaceuticals performed strongly, with some growth in manufacturing as well; however, declines in electricity generation and sewage treatment partially offset the overall increase. Following the data release, the British pound remained relatively stable against the US dollar. Triple Short-Term Boost: World Cup, Heatwave, and Ceasefire The ONS noted that some businesses reported positive impacts from the extreme heat and sporting events on operations in June. The Men's Football World Cup began in mid-June, where the England team advanced, leading to increased sales in alcoholic beverage manufacturing, food and drink services, and television production; foot traffic in hotels and restaurants broadcasting the events also rose. Additionally, multiple summer heatwaves in June benefited sectors such as retail, accommodation, and entertainment. Moreover, June coincided with a ceasefire window in the Gulf, with businesses mentioning the Iran conflict less frequently than in previous months, temporarily easing the pressures of soaring energy prices. However, the second quarter experienced a new wave of political uncertainty in the UK. Former Prime Minister Keir Starmer resigned in July, and Andy Burnham became the seventh Prime Minister of the UK in over a decade, while John Healey took over as Chancellor of the Exchequer. New Prime Minister Burnham has indicated that reducing the cost of living will be at the core of his administration, announcing a series of small measures including capping public transport fares and reducing VAT on energy bills. Chancellor Healey stated, This year we achieved the fastest growth in the G7, but now we need to double our efforts to drive economic growth in every postcode district. He also acknowledged public concerns regarding the impact of the Middle East conflict on living costs, saying, The cost of living has been too high for too long, adding pressure on UK businesses. For Healey, economic growth is needed to support Burnham's plans for increased public spending while controlling government borrowing. Outlook for the Second Half: Growth May Slow, Energy and War Remain Major Variables Despite stronger than expected performance in the first half, economists and the Bank of England anticipate that the momentum of UK economic growth will weaken as the impact of the Middle East conflict fully transmits. In July, the energy price cap in the UK rose by 13%, squeezing household purchasing power; policy uncertainty following the new governments assumption of office and the cautious sentiment ahead of the autumn budget may also delay economic activity. Yael Selfin, Chief Economist at KPMG UK, stated, Consumers have faced a series of shocks since the beginning of the year but have shown considerable resilience. As the effects of rising energy prices and higher borrowing costs transmit to households and businesses, growth is expected to slow in the coming months. Economists Matt Bunny and Dan Hanson indicated that the second-quarter GDP data suggests that despite headwinds from the Iran conflict and domestic political turbulence, the UK economy continues to hold its ground; the unexpectedly strong figures for June also imply that economic momentum extends into the second half. Nonetheless, the UK economic outlook largely depends on the trajectory of the conflict, which has currently disrupted energy supplies through the Strait of Hormuz. If this vital energy transportation route remains closed due to ongoing conflict until the end of the year, models from Treasury officials suggest that UK economic growth could slow to 0.9% in 2026 and only 0.3% in 2027, with inflation possibly peaking at 4.3% in early 2027. This pessimistic scenario implies that the Bank of England may find it more challenging to lower interest rates and could even face pressure to raise them again. Additionally, some economists are concerned that in recent years, UK growth has exhibited "front-loading" characteristics, pointing out that data may be affected by seasonal factors, and the uncertainty surrounding the autumn budget may push some economic activities into subsequent months.