UK GDP expanded by a relatively strong 0.6% in 2026 Q1, according to the ONS, in line with the consensus compiled by Bloomberg beforehand. This was significantly stronger than the 0.2% in 2025 Q4, and Q1 growth was underpinned by rises in household consumption and business investment. On a monthly basis, GDP rose by 0.3% in March compared with February, driven by a 0.3% rise in services and a 1.5% rise in construction that was partially offset by a 0.2% fall in industrial production. Despite growth at the start of this year, concerns remain about growth for the rest of this year as the impacts of the Middle East conflict gradually feed through.

Despite growth at the start of this year, concerns remain about growth for the rest of this year as the impacts of the Middle East conflict gradually feed through. Survey data, in addition to anecdotal evidence from businesses, indicate that momentum softened in Q2, as the conflict has already led to rises in lending rates and declines in consumer and business confidence. Lending rates and confidence in Q2 may also be affected by domestic political instability and uncertainty. The CPA’s Spring GDP forecast for 2026 is 0.5%, based on oil prices above $100 per barrel for four months. This is slightly below the consensus of 0.8%, but the concern is that many macroeconomic forecasters may be underestimating the potential impacts of cost inflation in 2026 H2 and 2027 H1, and risks to the forecast remain on the downside.

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