UK GDP increased by 0.4% in Q2, bolstered by surprise June growth of 0.3%.
June’s growth of 0.3% was ahead of consensus expectations and stronger than May’s downwardly revised flat outcome.
Some industry experts believe the resilient GDP figures, alongside falling inflation, will embolden the Bank of England to increase interest rates this year. However, others say the bank will see little need to adjust interest rates before November’s Budget.
Mariia Menahem, CEO of Clarity Global, commented: "The UK economy just posted growth three times faster than expected. GDP came in at 0.3% for the month against a forecast of flat, 0.0%, a clear signal that activity picked up pace even as the quarterly number, 0.4%, shows the broader trend still cooling from 0.6% last quarter. That split matters more than either number alone: a strong monthly print inside a slowing quarter tells you businesses are finding pockets of momentum even as the wider environment tightens, and that's exactly when access to working capital and flexible financing becomes the difference between a company that capitalises on the upswing and one that gets left behind. The Bank of England will read this as evidence to stay cautious rather than cut early, which means UK businesses should plan for financing costs that hold steady, not ease, in the months ahead."
Samuel Fuller, director of Financial Markets Online, said: “The UK economy has ridden out the inflationary shock caused by America’s war with Iran remarkably well.
“The pace of growth slipped from 0.6% in the first quarter to 0.4% in the second quarter of the year, but June’s performance was far stronger than expected.
“GDP sleepwalked through April and May, but June’s 0.3% monthly expansion catapulted it into rebound territory.
“June’s growth also came as inflation fell. CPI slipped back to 2.6% in June, a 15-month low, and while volatile energy prices still loom, this is a stable economic foundation on which the new Burnham government can build.
“However the economy’s resilience does give the Bank of England the freedom to focus solely on inflation in its next interest rate decision. With three members of the ratesetting MPC committee already voting for an immediate rate rise in July, the hawks will feel emboldened and the chances of an interest rate rise before the end of the year have increased.”
Sam North, market analyst for etoro, commented: “Britain’s 0.4% second-quarter growth rate may only have matched forecasts, but the detail is considerably better than the headline suggests. The economy finished the quarter with a surprisingly strong 0.3% rise in June, while growth was relatively broad-based: services expanded 0.5%, construction 0.3% and 15 of 20 major subsectors grew. This is not a boom though, and quarterly growth has slowed from 0.6%, but Britain is proving significantly harder to knock off course than many feared.
"That resilience creates an increasingly awkward problem for the Bank of England. Three MPC members already wanted to raise Bank Rate from 3.75% to 4% last month, with the Bank judging inflation risks to be tilted to the upside, and today’s GDP report makes it much harder to argue that the domestic economy is simply too fragile for tighter policy. A rate rise is certainly not guaranteed, and the full hit from higher energy prices is still to come and the Bank is rightly watching for second-round inflation effects. However, the growth numbers have just removed another layer of protection for borrowers. The uncomfortable irony is that good economic news is becoming bad interest-rate news: if Britain keeps growing like this while inflation remains stubborn, the Bank’s hawks will increasingly be able to ask what exactly the MPC is waiting for."
Jeremy Batstone-Carr, European strategist at Raymond James, added: “The UK economy managed to weather the uncertainties surrounding the US war with Iran. Growth is subdued and has eased lower after a strong start to the year, but in common with the Euro Area, activity has thus far proved comparatively resilient. The question as to whether that resilience can last going forward, especially given inevitable pre-Budget caution (again), remains to be seen. The Bank of England will likely view today’s data as vindication of its decision to maintain the base rate unchanged at 3.75%, a level it has held throughout 2026 to date.
“The Bank’s rate-setting Monetary Policy Committee will take note of today’s data and whilst its central remit remains to set monetary conditions with reference to the perceived inflation outlook, the two key takeaways are that the Bank will see little need to adjust the base rate ahead of a Budget. This will, secondly, likely go a long way to informing how the new government might deliver lasting growth over the next three years.”
