United Kingdom: Growth risks tilt higher – Deutsche Bank

Deutsche Bank’s Sanjay Raja notes that the UK economy remained strong over spring, with UK GDP rising 0.4% q/q and annualised growth in the first half reaching 2%. He highlights stronger-than-expected household spending, business investment and stockpiling in Q2-26, but expects a slowdown as energy costs, pump prices and budget uncertainty weigh on growth later in the year.

Strong start, slower second half expected

"The UK economy showed no signs of stopping over spring. After a thumping start to the year, UK GDP expanded by 0.4% q/q, taking the annualised growth rate in the first half of the year to a scorching 2%. And for a second straight quarter, it looks like the UK will take top place in the G7 league table."

"Yet again, as we signalled in our preview, forecasters will be forced to revisit their forecasts with another marginal upgrade looking likely for the year (to 1.1%)."

"Looking ahead, while the UK economy has been on a tear lately, some slowdown remains likely – reflecting recent patterns in GDP data (i.e. a strong start, followed by a weaker more subdued second half). Indeed, the energy crisis will likely catch up with households and business in Q3-26, as dual fuel bills rise."

"Elevated pump prices will also continue to squeeze on real disposable incomes. Budget uncertainty, we think, could also dampen spending as we await PM Burnham’s inaugural fiscal event."

"We continue to think that growth in the second half of the year will run closer to 0.1% q/q. But for the first time in a while, we now see modest upside risks brewing."