UK Q2 growth revised up to 0.5% as investment and incomes strengthen

Sterling firmed on Wednesday as the Office for National Statistics put a higher number on the second quarter. Growth in the April-to-June period was revised to 0.5 per cent, up from the first reading of 0.4 per cent and after 0.6 per cent in the opening three months of 2026.

The United Kingdom was the fastest-growing G7 economy in the first half of 2026. No other large advanced economy matched its pace across those six months. Annual growth was revised higher too, to 1.4 per cent. The estimate for full-year 2025 growth was reduced to 1.2 per cent.

“Good news about the resilience of the UK economy will help reinforce the ‘good vibes’ this government is keen to instil, but there’s no doubt that all of us, especially the chancellor, have one eye on the horizon.”

Services led the upward revision. The sector expanded 0.6 per cent in the period. “Additional growth in the service sector seems to have come courtesy of the rush by businesses to increase their AI capabilities. It is hoped these moves can help companies increase productivity levels and further bolster the country's economy,” Danni Hewson said.

What households and firms had actually done to underwrite the upgrade sat one layer deeper in the numbers. Real household disposable income per head rose 1.0 per cent in the second quarter. It was the biggest jump since the end of 2024. The figure is the cash left to each person after tax, adjusted for the prices households actually pay. In the first quarter of 2026 the same measure had fallen 0.8 per cent.

Households kept spending even as they set more aside. The household saving ratio, the share of disposable income put away rather than spent, increased 0.2 percentage points to 8.8 per cent.

Business investment growth was revised up to an annual rate of 5.2 per cent from an initial estimate of 0.8 per cent. The rebound in what people could spend and the lift in what firms put into now stood as the concrete underwriting of the stronger quarterly reading.

The same Wednesday carried a separate set of books from the Office for National Statistics, the ones that measure how the country stands with the rest of the world. The current account deficit stood at £19.9 billion, or $26.4 billion, in the second quarter. Economists had expected £24.7 billion. The current account is the running measure of trade in goods and services, income and transfers with the rest of the world.

Excluding precious metals, the deficit narrowed to 1.4 per cent of economic output. It was the smallest share in five years. Strong growth in services exports helped close it.

“At a time when the geopolitical temperature is rising, today's slight rise in GDP offers a welcome sign of resilience, with the economy edging forward despite a challenging backdrop. However, it is hard to view these figures as a reason for complacency. Growth remains modest, and the daily reality for business owners is still one of higher operating and financing costs, as well as subdued business investment.”

“The time for warm words is over. Businesses are looking to the Government to make good its commitments to support small businesses. From access to finance to managing fuel costs, real growth for UK PLC depends on taking action to strengthen business confidence and creating an environment where SMEs want to invest and hire,” Mike Randall said.

“High petrol prices, rising household energy bills and uncertainty ahead of the Budget are likely to take some momentum out of growth over the coming months.”

“There are plenty of menacing dark clouds hinting at more pain for household budgets, pain which the Treasury has little scope to prevent.”

Andrew Wishart, senior UK economist at Berenberg, named the pressure on total spending across the economy. “GDP growth will likely slow from here as the double squeeze on aggregate demand from higher energy prices and interest rates intensifies.”

How far that squeeze had already travelled sat outside the second-quarter frame, in the books for July. Borrowing costs and energy prices reach household budgets only after a delay. While the April-to-June books were still open, neither pressure had yet landed in full. The Ofgem price cap sets the maximum unit rates suppliers may charge domestic customers for gas and electricity. Higher wholesale prices stay off household bills until that ceiling rises to meet them. Interest rates that had jumped after the Iran war began had also started to come back down by midsummer, before their full weight could settle on the cost of credit.

Andrew Wishart laid the month out in order. “Back in July, the jump in interest rates since the start of the Iran war had partly reversed and households were yet to experience higher energy prices. The Ofgem price cap only rose to reflect higher energy prices in the same month, when hot weather prevented households needing much fuel.”

The raised price cap stood under the heat. Fuel was not yet needed.