Economic Review – August 2026

Recent data shows the UK economy unexpectedly expanded by 0.4% between April and June, despite ongoing pressure on business costs and household finances.

Official figures from the Office for National Statistics (ONS) showed gross domestic product (GDP) growth slowed from 0.6% during the first quarter. Nevertheless, the result was stronger than economists anticipated, suggesting consumers were still responding well to recent economic disruption. Services and manufacturing were the main growth drivers, while warm weather and major sporting events, including the World Cup, boosted hospitality and leisure activity. June was particularly strong, with output increasing by 0.3% during the month. Chancellor John Healey responded by pointing out the UK had seen the “fastest growth in the G7 this year” but that it now needed to “double down and drive growth in every postcode.”

The positive growth data was accompanied by a less encouraging update on the public finances. Government borrowing reached £1.8bn in July, considerably higher than the £500m surplus forecast by the Office for Budget Responsibility (OBR). Borrowing since the beginning of the financial year now stands at £56.7bn. Although this is £6bn below the equivalent figure a year ago, thanks to higher tax revenues, it remains more than £2bn above the OBR’s projection. This could leave the new Chancellor with little room to manoeuvre on taxes or spending when he delivers his first Budget on 28 October.

Stuart Morrison, Research Manager at the British Chambers of Commerce, said the UK economy displayed “welcome resilience” in Q2, but added, “The headline figures shouldn’t disguise the cocktail of cost pressures choking long-term business growth. The Autumn Budget must be a game changer for stronger, sustainable growth. We need measures that boost trade, investment and productivity. The Chancellor must back business, cut costs and deliver growth.”

Consumer spending slowed in July, according to ONS. The volume of goods sold in stores and online fell by 0.5% over the month, in sharp contrast to the rise of 0.7% for the previous month. The fall was predicted by economists.

Food and drink sales were a notable bright spot, increasing 3.8% year-on-year in July, in part due to the World Cup and England’s run to the semi-finals. However, non-food sales in stores were affected by the hot weather, falling 1.3% as shoppers opted to stay home. Clothing sales were down in July, which was in part attributed to retailers bringing forward summer sales to May and June. Consumers also appeared to delay purchasing big ticket items such as furniture and computers. 

Helen Dickinson, Chief Executive at the British Retail Consortium, said, “Consumer demand has struggled in the heat, leaving retailers facing a challenging start to the second half of the year. Household budgets remain stretched, consumer confidence is fragile and retailers continue to grapple with rising operating costs.”