GDP slowed to 0.4% in June – industry reaction

Economic growth in the UK slowed during the second quarter from April to June, as the effects of the Iran war began to show, according to the Office for National Statistics (ONS).

Gross Domestic Product (GDP), a measure of everything produced in the economy, grew by 0.4 per cent, down from 0.6 per cent in the first quarter. In the month of June alone, growth was slightly higher than predicted at 0.3 per cent.

The services sector was the main driver of growth, expanding by 0.5 per cent in the quarter. Meanwhile, production remained flat with no change from the first quarter

Computer programming grew 3.7%, advertising and market research expanded 4.3% and scientific research and development increased 3.9%. Private consumption rose 0.3% quarter-on-quarter, gross fixed capital formation increased 1.2% and business investment advanced 1.7%. Exports and imports both rose 0.5%, while government spending fell 0.3%.

Commenting on GDP figures for Q2, ONS Director of Economic Statistics Liz McKeown said “Growth slowed in the second quarter of the year, following a strong start to 2026, but remained relatively robust. Services were once again the main driver of growth, while production was broadly unchanged and construction also grew.

“Within services, computer programming and advertising continued to perform strongly, as they have done throughout the year, while wholesale was a notable area of weakness.

“While production was flat across the quarter, manufacturing grew, led by the often-volatile pharmaceutical industry alongside further strength in computer products. This was offset by falls in power generation and sewerage.

“Services also drove growth in June, with some businesses reporting that good weather and sporting events may have had a positive impact that month.”

Neil Rudge, Chief Banking Officer at Shawbrook, said “The UK economy continues to demonstrate resilience, with monthly GDP rising by 0.3%. Businesses have had to grapple with a difficult economic backdrop alongside extreme weather and persistent heatwaves impacting day-to-day operations across several sectors, making this increase even more notable.

“While economic momentum in the second half of the year will depend heavily on geopolitical developments, SMEs will also be watching closely ahead of Chancellor John Healey’s first Budget. Early policy steps around skills shortages and youth unemployment are encouraging, but businesses will be looking for direct relief, whether through tax concessions or improved access to funding – to manage high operating costs. Regardless, SMEs will benefit from speaking with a broker about their financing options. Building and maintaining a suitable cash reserve remains one of the best ways to protect cash flow and cover unexpected costs, while waiting for more economic stability.”

Mike Randall, CEO at Simply Asset Finance, said “Slower growth shows the economy is still moving, but unless we tackle what is holding businesses back, it could quickly stall.

“For the new Prime Minister, this is an early test. SMEs want to invest and grow, but they need the government to see them as part of the solution, rather than just an expense.

“As we head into the third quarter, ‘growth in every postcode’ needs to stop being a party slogan, and actually translate into removing the barriers that stop good businesses getting on with the job.”

Andrew Phillips, Managing Director of V12 Retail Finance said “The latest GDP figures reinforce the picture we have been seeing across the retail finance market in recent months – consumers remain cautious, but they have not stopped spending altogether. Growth may have moderated during the second quarter, but the economy continues to expand despite persistent cost pressures and heightened geopolitical uncertainty.

“What we are seeing internally is a more selective consumer rather than a weaker one. Households are continuing to make significant purchases where they see long-term value, particularly in areas such as the home, healthcare and other essential categories, even as they think more carefully about discretionary spending.

“The resilience shown in today’s data is encouraging, but the months ahead are likely to remain challenging. Higher energy costs and inflationary pressures continue to weigh on household finances, which means flexibility and affordability will remain critical factors in purchasing decisions. Retailers that can help consumers spread the cost of larger purchases are likely to remain well positioned in this environment.”

Ben Jones, CBI Senior Lead Economist, said “June’s stronger-than-expected growth is encouraging, with the warm weather and start of the World Cup supporting consumer spending. Together with a solid performance across the second quarter, today’s figures suggest the UK economy has so far proved more resilient to the economic fallout from the Iran war than was widely expected a few months ago.

“The challenge now is maintaining that momentum. Businesses have become somewhat less pessimistic recently, but uncertainty around the new government and the Autumn Budget could encourage firms to keep plans on ice. Continued instability in the Middle East also leaves the economy exposed to renewed volatility in energy markets and financial conditions.

“As the Prime Minister focuses on the cost of living this week, the priority must be to build on the economy’s recent resilience and deliver sustainable growth. Tackling the cost of doing business – from high industrial electricity and employment costs to business rates reform – will be critical to achieving this goal. This would help put the economy on a stronger footing to deliver rising real wages and higher living standards across the country.”

Suren Thiru, ICAEW Chief Economist, said “This was economic resilience with an asterisk as much of the second quarter’s strength was driven by temporary factors, including Iran war-driven stockpiling by businesses, unusually warm weather and the World Cup, rather than genuine momentum.

“While stronger consumer spending and business investment imply that households and firms largely shrugged off the shockwaves from the Iran war, the growing financial squeeze sparked by the conflict means this upturn will be difficult to sustain.

“This slight second-quarter slowdown is likely to be followed by a more painful deceleration in Q3, as the squeeze on household incomes from higher inflation and energy costs increasingly stifle growth, particularly if pre-Budget speculation further dampens confidence.

“Expected weaker GDP growth in the second half of the year could make the Chancellor’s Budget balancing act more challenging by increasing fiscal pressures and limiting his policy options at a time of heightened financial market volatility.

“Though these figures won’t knock rate-setters off their current hawkish positioning, the chances of a September rate hike remain slim, given expectations that softer economic activity in the months ahead will ultimately help contain inflation.”