UK Economy Loses Momentum as Political Turmoil and Middle East War Bite

Britain’s economy continued to grow in the second quarter of 2026, but the pace slowed as political uncertainty and soaring energy costs linked to the Middle East conflict put additional pressure on households and businesses.

The UK’s Gross Domestic Product (GDP) grew by 0.4 per cent between April and June, down from the 0.6 per cent expansion recorded in the first quarter, according to the Office for National Statistics (ONS).

Despite the slowdown, the ONS described economic activity as relatively robust, with the services sector once again providing the biggest contribution to growth.

The latest figures come at a turbulent period for Britain, with domestic political upheaval coinciding with the economic impact of the US-Iran war and rising energy prices.

Political Turmoil Adds to Economic Pressure

Britain’s political landscape has undergone significant changes in recent months.

Keir Starmer resigned as prime minister in late June and was replaced about a month later by Andy Burnham, after Labour suffered declining support in opinion polls amid growing competition from Reform UK.

Following the latest economic figures, Finance Minister John Healey said the new administration was focused on putting British interests first and easing pressure on households and businesses.

Healey acknowledged growing concerns over the impact of the Middle East conflict on living costs, particularly as higher energy prices add to already elevated inflation.

He said the conflict had created additional challenges for British companies and households struggling with rising costs.

Services Drive Growth

The ONS reported that the services sector expanded by 0.5 per cent during the second quarter, making it the main driver of overall economic growth.

Construction also recorded growth, while production output remained broadly unchanged.

ONS Director of Economic Statistics Liz McKeown said the economy had slowed following a strong start to the year but continued to show resilience.

Services, she noted, remained central to the country’s economic performance.

Monthly figures showed that the economy grew by 0.3 per cent in June, following no growth in May and a slight contraction in April.

World Cup Gives Businesses a Boost

The football World Cup also provided a temporary boost to several industries in June.

The ONS said businesses involved in alcohol manufacturing, wholesale, food and beverage services, publishing, television production and advertising recorded increased turnover during the month.

The tournament helped drive consumer activity and business revenues, contributing to the stronger performance recorded at the end of the quarter.

However, economists warned that the headline growth figures do not fully reflect the challenges facing British businesses.

Stuart Morrison, research manager at the British Chambers of Commerce, said rising costs continued to weigh on companies and could undermine long-term growth.

He called on the government to use its October 28 budget to introduce measures capable of improving trade, investment and productivity.

Inflation and Energy Costs Remain a Concern

The government has placed reducing the cost of living among its priorities, with plans to remove tax on household electricity bills during the winter.

However, the continuing Middle East conflict remains a major economic concern because of its impact on global energy prices.

The Bank of England has warned that higher energy costs could push British inflation higher, adding another challenge for policymakers as they seek to support economic growth while controlling prices.

With GDP growth slowing and businesses facing persistent cost pressures, the government will come under increasing pressure to demonstrate that its economic policies can deliver stronger and more sustainable growth.