The UK economy expanded faster than initially reported in the second quarter of 2026, with growth revised upward to 0.5% from an earlier estimate of 0.4%, according to the latest National Accounts released on 30 September. The stronger-than-expected performance comes despite disruptions from the Iran war and offers a modest boost to Chancellor John Healey as he prepares the budget due within four weeks. The revision also means that former Chancellor Rachel Reeves handed over a slightly larger economy than previously recognised.
The revision reflects stronger activity across the services sector, which expanded by 0.6%, and the construction sector, which grew by 0.8%, while the production sector contracted by 0.1%. However, the Office for National Statistics simultaneously revised down its estimate for full-year 2025 growth. According to economic data sources, the revision was largely driven by stronger professional, scientific and technical activity after updated business survey data became available.
Liz McKeown, director of economic statistics at the ONS, said:
Today's figures include our annual improvements to the measurement of the economy, incorporating new information that provides a better picture of activity across the UK's service sector, alongside the usual inclusion of updated and improved data sources. Growth for 2025 as a whole was a little lower than previously estimated, with the profile of growth across the quarters also revised. However, stronger services growth in the latest quarter means the economy is now slightly larger than previously estimated.
How does this compare with other major economies?
The UK has cemented its position as the fastest-growing economy among the Group of Seven nations in the first half of 2026. Combined growth of 0.6% in the first quarter and 0.5% in the second quarter places Britain ahead of other advanced economies on a half-yearly basis, though on an annual basis it shares third place with Japan. This performance provides political cover for Prime Minister Andy Burnham, who took office in late June, and may help reduce pressure for an early election.
Chris Beauchamp, chief market analyst at IG, observed:
Still on a post-speech high, the upgraded figure is yet more good news for the UK's still-new(ish) prime minister. The highest growth in the G7 for the first half is certainly a headline and one that will help keep nervous MPs in line for a while, plus it helps take off pressure for a new election - why risk it now when things appear to be improving nicely.
Will growth momentum continue?
Economists caution that the current pace of expansion may not persist through the remainder of 2026. Ashley Webb, senior UK economist at Capital Economics, warned:
The upward revision to real GDP growth in Q2, from 0.4% q/q to 0.5% q/q, suggests that the economy has been a bit more resilient to higher energy prices in the first half of the year than previously thought. This resilience may continue into Q3, but we still expect it to fade in Q4 as higher inflation takes a bigger bite out of households' real incomes.
The 0.5% quarterly gain in Q2 followed unrevised growth of 0.6% in Q1. The composition of growth reveals that government spending contracted by 0.5% in the quarter, revised down from a previously estimated decline of 0.3%, indicating the economy is no longer being heavily supported by public expenditure.
Thomas Pugh, chief economist at RSM UK, concurred with the outlook for a winter slowdown:
The upward revisions to Q2 GDP growth means the economy was even stronger in the first half of the year than we previously expected, despite the Iran war. What's more, the composition of growth looks a little healthier. Surveys suggest that much of that positive momentum has been carried forward into Q3 meaning we have revised up our annual GDP forecast to 1.4%. However, the next six months looks tougher with potential interest rate rises, a sharp increase in inflation and another tax raising budget all to come. That will drag heavily on growth over the winter.
What drove the stronger export performance?
Export volumes showed marked resilience in the second quarter, with exports rising 2.8% compared with an initial estimate of 0.5%. This substantial upward revision suggests that international demand for British goods and services proved stronger than first thought, providing a significant contribution to the overall growth upgrade.
How are household finances faring?
An important measure of living standards improved in the second quarter. Real household disposable income per head increased by 1.0% in April-June, reversing a decline of 0.8% in the first quarter. This means households had more money available to spend, save, or invest after taxes and deductions, adjusted for inflation. Additionally, the household saving ratio reached 8.8%, up 0.2 percentage points from the previous quarter, driven by increased non-pension saving.
Is business investment picking up?
Business investment expanded by 1.8% in the second quarter and was 5.2% higher than a year earlier, suggesting that companies may be beginning to participate in the artificial intelligence-driven investment wave visible in the United States. Gross fixed capital formation rose by 0.9% in Q2, with the main drivers being increases in other buildings and structures, which would include data centres.
Martin Beck, chief economist at WPI Strategy, noted:
Consumer spending growth remained at the previous estimate of 0.3%, but business investment growth was revised up to 1.8%. That offers at least some evidence that the UK may be starting to catch the AI-driven investment wave very visible in the US.
What about energy bills and household costs?
While the economic data offers some encouragement, households face mounting pressure from rising energy costs. Household energy bills in Great Britain are predicted to jump by £276 a year for the typical household from January 2027, as the impact of the Middle East war continues through the coldest months of winter. The government's price cap on energy is poised to rise by 16% to the equivalent of £1,999 for the average annual dual-fuel bill, reaching its highest level in four years. This increase is well above earlier predictions of a 9% rise, with analysts attributing the larger-than-expected jump to recent gas market prices reaching three-year highs.
What is happening at Greggs?
The bakery chain Greggs announced plans to cut more than 700 jobs despite reporting improved trading performance. The company is proposing to close four of its production sites, which could result in up to 740 redundancies. According to trading updates from the company, the proposed manufacturing changes would cost approximately £60 million but are expected to save around £20 million across the 2028 and 2029 financial years.
Greggs warned that with signs of greater inflationary pressures anticipated in 2027, it needs to cut costs to remain competitive. The company stated:
We believe such changes, whilst difficult, are necessary to ensure Greggs continues to meet capacity requirements for growth in the years ahead in the most cost-efficient manner. Our immediate priority is to minimise the impact on our people where possible. We will enter into a consultation period shortly to work with trade unions and employee representatives of those affected to refine and develop these proposals.
The restructuring announcement came alongside a trading update showing that Greggs achieved 7.7% sales growth in the third quarter of the year, ending 26 September. The company attributed this performance to continued menu innovation and more settled weather. New menu items include a Steak & Stilton Bake and relaunched salads. The stronger third-quarter trading has modestly improved Greggs' outlook for 2026, with the company now expecting a more positive outcome than previously guided.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, commented:
Greggs served up a tasty trading update, with total sales growth accelerating to 7.7% over the third quarter. This was driven by more settled weather in recent months, alongside ongoing menu development and product innovation. New store openings also played their part, with the group on track for 100-110 net openings this year, excluding 12 Express locations, making it easier for more customers to tuck into their freshly baked goods. Alongside cost inflation remaining at a manageable level of around 2%, the full-year outlook has modestly improved from prior guidance, which had pointed to operating profits of around £188mn.
By 26 September, Greggs had opened 95 shops and closed 38 during 2026, resulting in 57 net new openings and leaving 2,796 shops trading. The manufacturing review is intended to support the company's ambition of reaching 3,500 UK shops while meeting capacity needs in a cost-effective manner. Shares in Greggs jumped 7.5% at the start of trading following the announcement.
What happens next?
The Office for National Statistics will release its next GDP figures on 22 December 2026. Greggs will begin a consultation period with trade unions and employee representatives on the proposed manufacturing changes.
Key Facts:
- UK Q2 2026 GDP growth revised to 0.5% from 0.4%, driven by services sector expansion of 0.6% and construction growth of 0.8%
- The UK is the fastest-growing G7 economy in the first half of 2026, with combined growth of 1.1% across Q1 and Q2
- Export volumes surged 2.8% in Q2, revised sharply upward from an initial estimate of 0.5%
- Real household disposable income per head increased 1.0% in Q2, and the household saving ratio reached 8.8%
- Greggs reported 7.7% sales growth in Q3 but plans to close four production sites and cut up to 740 jobs to manage anticipated inflationary pressures in 2027
