United Kingdom: Resilient growth outlook – Deutsche Bank

Deutsche Bank Research, led by Sanjay Raja and Maui Brennan, highlights the United Kingdom (UK) economy’s surprising resilience to the Iran-related energy shock in 2026. Gross Domestic Product (GDP) grew 0.6% q-o-q in Q1 and 0.4% in Q2, making the UK the fastest-growing G7 economy. Softer inflation, strong household spending, robust business investment and stockpiling support Deutsche Bank’s view that 2026 GDP could exceed its 1.1% forecast.

Growth beats expectations despite energy shock

"But after a thumping Q1-26, where GDP growth outshot forecaster expectations, rising by 0.6% q-o-q, Q2-26 GDP growth didn’t disappoint either. For a second straight quarter, the UK economy outshot forecasters’ expectations, expanding by 0.4% q-o-q. To be sure, the UK is now the fastest growing economy in the G7 so far this year, with the economy growing at an annualised pace of 2%."

"And yet again, forecasters will have been left revising up their projections with more upside risks brewing around 2026 GDP forecasts. Crucially, the recent upside in growth begs the question: why has the economy been so resilient in spite of the Iran energy shock? Indeed, household spending shot up by 0.85% in H1-26."

"Big picture, UK GDP continues to show more resilience than many expected. Summer survey data have already outshot our own expectations, with the latest PMI data pointing to a firming in activity (the August flash composite index jumped to 52.5 from 52.2). And we now see more upside to our H2-26 growth projections, particularly in Q3-26."

"A strong carry-over effect, plus sustained momentum could see GDP push a tenth higher to 0.2% q-o-q (our current projection has GDP growth projected at 0.1% q-o-q in Q3 and Q4)."

"All in all, while we see GDP growth tracking at 1.1% this year, there’s some upside risk brewing. Risks are skewed to yet another upward revision in the coming months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)