UK economy ‘bucks expectations’ and shows growth in May despite Iran conflict
UK GDP grew by 0.1% month-on-month – but where will it head in 2026?
The UK economy unexpectedly grew in May, partially shrugging off the effects of the Iran conflict.
Gross domestic product (GDP) rose by 0.1% month-on-month following a fall of 0.1% in April and growth of 0.3% in March.
In the three months to May 2026 compared with the three months to February 2026, GDP grew by 0.7%, following an uptick of 0.8% in the three months to April, according to the Office for National Statistics (ONS).
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Sanjay Raja, chief UK economist at Deutsche Bank, said the figures published today “bucked expectations”.
Raja added: “It’s likely that the UK will continue to sit at, or near the top, of the G7 league table when it comes to GDP growth in the second quarter of the year.
“In short, prime minister Starmer hands over the economy to his successor Andy Burnham on much better footing.”
What was behind the May GDP figures?
The positive monthly GDP figures were largely driven by a 0.3% rise in the services sector, in particular from professional, scientific and technical activities, which grew by 1.8%. Within this category, scientific research and development grew 5.1% – its highest peak since June 2025, the ONS said.
Consumer-facing services saw a 0.5% rise off the back of a spike in retail activity.
Scott Gardner, investment strategist at J.P. Morgan Personal Investing, said retail sales increased due to real wages rising but warned this “could fade if private sector wage growth slips below inflation in the months ahead”.
Advertising and market research was another positive driver of May’s figures, up 3.2% and showing growth for the sixth consecutive month.
Offsetting growth across these sectors, the production sector fell by 0.5% in the month to May while output across construction dropped by 0.8%.
Jeremy Batstone Carr, European strategist at financial planning firm Raymond James Wealth Management, said the May figures showed “a divergent performance between the service sector and industrial output”, with weak automotive and mining output slowing industrial growth more widely.
Where will GDP growth go in the rest of 2026?
The International Monetary Fund’s latest forecasts for UK GDP growth in 2026 are 1%, up from 0.8% in April, but still lower than the 1.3% it had predicted in January, before the start of the Iran conflict.
Should tensions between the US and Iran continue to re-escalate, the outlook for UK GDP could worsen.
In any case, the higher cost of wholesale energy, caused by major disruption in the Strait of Hormuz south of Iran, has already started filtering through into domestic UK energy bills.
The Ofgem price cap rose by 13% on 1 July, seeing the average household on a dual-fuel standard variable tariff paying £1,862 a year, up from £1,641 between 1 April and 30 June.
Raja, from Deutsche Bank, said this energy squeeze will catch up with businesses as well as households and could dent spending and investment, but he pointed to some potential positives.
“First, despite a heartbreaking World Cup loss yesterday, the UK will very likely see a temporary bump in GDP over July (given extended trading hours).
“And second, the UK is not the G7 laggard that many regard it to be. The latter will be important for the new prime minister, as it will likely offset some of the potential downgrade to the economic outlook coming as part of the Office for Budget Responsibility’s fiscal update in autumn."
