UK economy shows surprising resilience – but that might not last
The UK economy has shown surprising resilience, with growth slowing to 0.4% in the first half of 2026. Despite the gloomy international backdrop, consumers have largely continued spending and business investment has boomed.
Intelligence analysis by Llama
The UK economy has maintained its pole position as the fastest growing economy in the G7, despite the Iran war pushing up energy prices. However, there are reasons why the unexpected resilience of Britain's economy is unlikely to last.
The UK economy is doing better than expected, but it might not last because of rising energy costs and inflation. This means people might struggle to pay their bills and businesses might not invest as much.
Analysis
UK Economy's Resilience Tested by Iran War and Energy Costs
The UK economy has shown surprising resilience in the face of the Iran war and rising energy costs. Despite the gloomy international backdrop, consumers have largely continued spending and business investment has boomed. The latest official figures show the UK maintained its pole position as the fastest growing economy in the G7 in the first half of 2026. However, there are reasons why the unexpected resilience of Britain's economy is unlikely to last.
The Iran war has pushed up energy prices, which could add further pressure on households and businesses. Geopolitical tensions are also bad news for business investment. For the new chancellor, John Healey, the figures are good news as he prepares to present his first budget on 28 October. They are also a crumb of comfort for his ousted predecessor, Rachel Reeves, who had claimed Britain could beat the downbeat forecasts made by the IMF.
However, the unexpected resilience of Britain's economy is unlikely to last. After the surge in global oil prices prompted by the Iran war, and continuing market volatility, UK consumers may have fared better than expected amid the jump in petrol and diesel prices. But they were insulated from the rise in household gas and electricity bills by lower levels of energy demand during the summer months and the Ofgem energy price cap. The latest GDP figures cover the period when bills were protected. The cap then jumped by 13% from the start of July, which experts say could push millions of households into fuel poverty.
Andy Burnham's 'breathing space' measures to ease the cost of living, including cutting VAT to reduce consumer electricity bills by an average of £45 a year from October, will help. But headline inflation remains elevated and household resilience is thin after years of price growth.
Key points
- The UK economy has shown surprising resilience in the face of the Iran war and rising energy costs.
- Consumers have largely continued spending and business investment has boomed.
- The Iran war has pushed up energy prices, which could add further pressure on households and businesses.
- Geopolitical tensions are also bad news for business investment.
- The new chancellor, John Healey, will present his first budget on 28 October.
If the UK economy can maintain its growth, it could lead to more investment and job creation. However, this is uncertain and depends on various factors, including the outcome of the Iran war and energy costs.
If the UK economy slows down due to rising energy costs and inflation, it could lead to higher unemployment and reduced consumer spending. This could also impact business investment and economic growth.
