UK Economic Growth Slows as Iran War Drives Energy Prices 2026

UK economic growth slowed in the second quarter as the Iran war pushed energy prices higher, according to official figures. The Office for National Statistics (ONS) reported that GDP expanded by 0.4% in the three months to June, down from 0.6% in the first quarter, matching City economists' expectations. While this marks a deceleration, analysts note the economy has shown more resilience than feared amid the ongoing Middle East conflict.

UK GDP Growth: Q2 2026 Performance

The latest data reveals a mixed picture across sectors. Services output grew by 0.5%, construction by 0.3%, while industrial production remained flat. Within services, information and communication businesses led with a 2.7% surge, driven by computer programming. June alone saw a better-than-expected 0.3% monthly growth, buoyed by warm weather and World Cup-related spending.

Comparative Growth Rates

Economists like Yael Selfin of KPMG note that consumers have weathered shocks well, but momentum is expected to fade. Rising energy costs from the Iran conflict are likely to dampen growth in the second half of 2026.

Impact of Iran War on Energy Prices

Oil and gas prices spiked following attacks on Iran, directly affecting UK energy bills and industrial costs. This has raised concerns about inflation and consumer spending power. The new chancellor, John Healey, faces the challenge of balancing fiscal policy ahead of his first budget on 28 October.

Key Takeaways

• UK GDP growth slowed to 0.4% in Q2, down from 0.6% in Q1.
• Services sector remains the main driver, with 0.5% growth.
• Energy price surges from the Iran war threaten future growth.
• June's 0.3% monthly growth exceeded expectations due to temporary factors.
• Economists predict weaker momentum in H2 2026.

What This Means for Businesses

Businesses should prepare for higher energy costs and potential supply chain disruptions. The resilience seen in Q2 may not persist, so strategic planning is essential. Monitoring government budget announcements will be crucial for fiscal adjustments.

FAQ

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