ONS releases its second quarter GDP statistics today, quite good. The UK economy expanded by 0.4% during the April-June period. John Healey, referred to it as the fastest growth in the G7 this year.
He is right. Combined with Q1’s 0.6%, the UK leads the G7 on a half-year basis with 1% growth.
That is the good news. Now for the rest of it.
At a glance:
- GDP grew 0.4% in Q2 2026, down from 0.6% in Q1
- Year-on-year growth is 1.2%, strongest since 2022
- 15 of 20 economy subsectors expanded, but production posted zero growth
- GDP per capita is still 6.6% below pre-pandemic trend
What Actually Drove It
Services carried everything, again
Services output grew 0.5% across the quarter. Information and communication was the standout at 2.7% in three months, driven by AI investment. Professional and technical services added to that in June, up 1%.
Construction grew 0.3%. Production was flat. Zero.
So if your business sits outside services or tech, the headline number is not really describing your world.
The June spike and why it matters
April contracted 0.1%. May was flat. June came in at 0.3% monthly growth and saved the quarter.
But Ruth Gregory at Capital Economics flagged it directly. The jump in arts, entertainment, accommodation and food services in June “probably had a lot to do with temporary factors, such as the World Cup and the unseasonably warm weather.” The ONS said the same thing, more carefully.
World Cups do not repeat. Heatwaves end. That June tailwind is already gone.
The Rate Decision Looming in September
What the Bank of England did on 30 July
Held at 3.75%. But the vote was 6-3. Three MPC members, Megan Greene, Catherine Mann and Huw Pill, wanted a rise to 4%. That is one more hawkish dissenter than June, two more than April.
Three consecutive meetings. The minority wanting higher rates keeps growing.
Why today’s GDP number changes the September calculation
The next MPC decision is 17 September. An economy growing above trend makes it harder to argue for a hold. The three dissenters already have their case. Today’s data does not weaken it.
A Reuters poll of 65 economists found nearly 40% expect at least one hike before the end of 2026. The Bank’s own projection has CPI inflation peaking at 3.2% in Q4. Energy costs from the Middle East conflict sit on top of that.
Most analysts still expect a hold on 17 September. But a month ago, most analysts did not expect three dissenting votes either.
The number that matters if rates move
A hike from 3.75% to 4% on a £500,000 variable rate business loan adds £1,250 to the annual interest bill. Stack that onto the employer NI rise from April 2025 and the April 2026 wage increase. It compounds.
Any business carrying variable rate borrowing or an overdraft tied to base rate should know where that September decision lands.
The Bits the GDP Headline Does Not Show
Manufacturing and production sat out
Zero growth in production for the whole quarter. Some manufacturing subsectors edged up but the overall picture was flat. Logistics, wholesale trade, energy-intensive businesses, none of that is in the 0.4% that gets the headlines.
Construction grew 0.3% on infrastructure and housing activity, but input costs in the sector remain high and insolvencies have been significant throughout 2025 and 2026.
Consumer-facing businesses are in a different economy
June recorded 11,871 personal insolvencies. That is 16% up on the same month last year. Fifth consecutive monthly rise.
If you run a shop, a restaurant, a service business that sells to ordinary people, your customers are the ones in those numbers. They are not spending freely. Some are not paying at all. The GDP headline does not reach them.
A 0.4% growth quarter and a 16% annual jump in personal insolvencies can exist at the same time. They are existing at the same time right now.
GDP per head: the number that actually describes most people’s lives
GDP per capita edged up 0.4% in Q2. Fine. But zoom out and it sits 6.6% below the trajectory it was on before the pandemic hit. That gap, six years of lost ground, is what shows up in wages that feel too low, margins that feel too tight, and revenues that never quite recovered to where they should be.
The aggregate economy grew. Most business owners do not feel like it did.
The Iran War Variable
EY’s warning is the one sitting behind most forecasts right now. If the Strait of Hormuz blockade extends into 2027, UK GDP growth this year could fall to 0.5% and the economy could shrink 0.2% in 2027.
The IMF upgraded its UK growth forecast before the latest escalation. It has been more cautious since.
Energy prices are already elevated. Certain supply chains are disrupted. Healey acknowledged today that the conflict has added pressure on British businesses and kept the cost of living too high.
The Resolution Foundation put the buffer clearly. The economy is about 0.4% larger than the OBR’s March forecast. That is not much to absorb a sustained Middle East shock with.
What October Budget Looks Like From Here
Today’s figures give Healey slightly more room than he had in March. The economy came in ahead of OBR projections. That is not a windfall but it reduces the pressure for dramatic revenue measures on Budget day.
What does not change: the £5.1 billion annual tax revenue target. The £555 million HMRC investment. The compliance trajectory. Those are fixed regardless of whether Q2 printed at 0.3% or 0.4%.
Budget date is 28 October. Tax changes for businesses are possible. Nothing confirmed yet.
Dates and Decisions Worth Watching
17 September : Bank of England MPC decision. Rate hike is a live risk, not the base case. Watch the vote split.
28 October : Autumn Budget. First Healey Budget. Business tax changes possible.
7 November : Second MTD quarterly deadline for sole traders and landlords in the April 2026 cohort.
If your business carries variable-rate debt, the September decision is the near-term number that matters most. If you are planning around corporation tax or cash flow before year-end, the Budget on 28 October is where the picture becomes clearer.
Lanop works with small businesses on payroll, tax planning and compliance. Get in touch if you want to talk through what the current rate and tax environment means for your specific situation.
