Britain’s economy grew faster than previously estimated in the second quarter of 2026, strengthening its position as the fastest-growing Group of Seven economy during the first half of the year but setting up a tougher test for the government ahead of its October budget.
Economic output expanded by 0.5% between April and June, the Office for National Statistics said on Wednesday, up from an initial estimate of 0.4%.
Gross domestic product was 1.4% higher than a year earlier, also exceeding the previous estimate of 1.2%.
The stronger figures point to an economy that has remained more resilient than expected despite geopolitical upheaval, higher energy prices and elevated borrowing costs.
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Growth was broad-based, with manufacturing, construction and the dominant services sector all contributing to the expansion.
Business investment was also significantly stronger than initially estimated. The ONS revised annualised second-quarter business investment growth to 5.2%, compared with its previous estimate of just 0.8%.
Britain Holds Its G7 Growth Lead
The latest figures reinforce Britain’s position as the fastest-growing G7 economy during the first half of 2026.
GDP per head increased by 1.1% during the first half of the year. Excluding the distortions caused by the COVID-19 pandemic, that was the strongest increase since late 2017.
The figures provide a boost for Prime Minister Andy Burnham’s government as it seeks to accelerate economic growth.
Britain’s economy has also shown resilience despite higher energy prices linked to the Iran war and elevated borrowing costs.
“The upward revision to real GDP growth in Q2 … suggests that the economy has been a bit more resilient to higher energy prices in the first half of the year than previously thought,” said Ashley Webb, senior UK economist at Capital Economics.
He warned, however, that the resilience could weaken later in the year as higher inflation reduces households’ real incomes.
Households Get Some Relief
Household finances also improved during the second quarter.
Real household disposable income per head rose by 1.0% during the three months to June, marking its biggest quarterly increase since the end of 2024. That followed a 0.8% decline in the first quarter.
The household savings ratio also edged higher to 8.8% from a downwardly revised 8.6%, suggesting households continued to retain some income rather than increase spending.
But economists expect pressure on consumers to increase over the coming months.
“The next six months looks tougher with potential interest rate rises, a sharp increase in inflation and another tax-raising budget all to come,” said Thomas Pugh, chief economist at RSM UK.
“That will drag heavily on growth over the winter.”
The Bank of England held its benchmark interest rate at 3.75% in September. Investors are now pricing in a quarter-point increase in November, followed by another possible move in February.
October Budget Could Test the Recovery
The stronger growth figures come just weeks before Finance Minister John Healey is due to present his first budget on October 28.
Many economists expect the government to raise taxes by billions of pounds as it attempts to meet its deficit reduction targets.
The challenge for policymakers is to strengthen public finances without undermining an economy that has only recently shown signs of greater momentum.
Britain’s external position has also improved. Separate ONS data showed that the current account deficit narrowed to £19.9 billion ($26.4 billion) in the second quarter, below economists’ expectations of £24.7 billion.
Excluding precious metals, the deficit narrowed to 1.4% of economic output, its smallest level in five years, helped by strong growth in services exports.
However, economists expect pressure on Britain’s external finances to persist as higher energy prices keep the cost of imports elevated.
“The bigger picture is that the current account will remain under pressure as higher-for-longer energy prices keep imports elevated,” said Rob Wood, chief UK economist at Pantheon Macroeconomics.
The stronger second-quarter performance gives the government a stronger economic starting point heading into the autumn. But rising inflation, potentially higher interest rates and tax increases could determine whether Britain can maintain its momentum through the winter.
With information from Reuters.
