Economy slows but doesn’t stall as the UK leads the G7 on growth

The UK economy grew by 0.4 per cent in the second quarter of 2026, slowing from the strong 0.6 per cent expansion in Q1 in line with economists’ expectations, the Resolution Foundation said today (Thursday).

This slowdown from our bumper first quarter continued a multi-year trend of growth coming in fastest in Q1. Nonetheless, combined growth of 1 per cent in the first two quarters of the year leaves the UK the fastest-growing economy in the G7 so far this year.

Growth in the second quarter was broad-based, with 15 of the economy’s 20 subsectors expanding between April and June. Services once again did the heavy lifting, expanding by 0.5 per cent over the quarter, but the stand-out performer was information and communication, which grew 2.7 per cent in three months as companies scrambled to invest in AI.

There was also encouraging news for living standards. GDP per capita – the measure which matters most for household budgets – grew by 0.4 per cent last quarter, close to the UK’s long-run average (0.5 per cent) and above the weaker rates typical after the pandemic (0.3 per cent). But the UK still has lost ground to make up, with GDP per capita remaining 6.6 per cent below its pre-pandemic trend.

Today’s figures may offer some small comfort to the Government ahead of the autumn Budget, with forecast-defying growth in the first half of the year leaving the economy marginally larger (by 0.4 per cent) than the OBR’s forecast in March.

But the Foundation warns that the economic fallout from the Iran war may cancel out that good news. Despite the strong start to 2026, the Bank of England has downgraded its future growth outlook. If the OBR follows suit, the hit to the growth forecast alone could wipe out a quarter (£6 billion) of Chancellor Healey’s headroom at his first Budget.

Stephen Hunsaker, Economist at the Resolution Foundation, said:

“Britain’s economy has slowed after a strong start to the year, but growth of 0.4 per cent in the second quarter still leaves the UK leading the pack ahead of its G7 peers.

“The most encouraging news is for living standards, with GDP per capita growing close to its long-run average, notably faster than the stagnant period following the pandemic. But with output still well below our pre-pandemic trend – never mind our pre-financial crisis path – there is still plenty of lost ground to make up.

“The biggest challenge lies ahead. The fallout from the Iran war has raised the possibility of Chancellor Healey losing a quarter of his headroom, putting him on the backfoot at his first Budget this autumn.”