UK economy grows as expected before Iran war impact, ONS data shows
UK Economic Growth and Household Impact in Early 2026
By Suban Abdulla and Andy Bruce
LONDON, June 30 (Reuters) - Britain's economy grew robustly in the first quarter of 2026, official data confirmed on Tuesday, but households were squeezed even before the worst effects of the U.S.-Iran conflict started to feed through.
Quarterly Growth Figures and Main Drivers
Economic output grew by 0.6% in the first three months of the year, unchanged from an initial estimate by the Office for National Statistics.
Services Sector Performance
"Services were the main driver of growth in the latest quarter, with strengths in computer programming, wholesale and advertising only offset by falls in rental companies and recruitment agencies," Liz McKeown, director of economic statistics at the ONS, said.
Seasonal Adjustment Concerns
It marked the third year running of conspicuously strong growth in the first quarter — and some economists have raised concerns with the statistics office's seasonal adjustment processes.
The ONS reiterated on Tuesday that a review had found no statistically significant seasonality, although it was monitoring it closely.
Fiscal Policy and Economic Outlook
Fiscal Policy to Remain Tight
FISCAL POLICY TO REMAIN TIGHT
Business surveys and economic growth data for April suggest Britain's likely next prime minister to replace Keir Starmer, Andy Burnham, will face a tougher inheritance.
Impact on Investment and Government Leadership
"Alongside softer household spending, tighter financial conditions and economic uncertainty will weigh on investment," said Matt Swannell, chief economic adviser to the EY ITEM Club, a consultancy.
"Even though the government will soon be under new leadership, fiscal policy is likely to remain tight in the near term."
Revised Growth Estimates
The ONS revised growth in the final three months of 2025 down to 0.1%.
Output in 2025 as a whole was also slightly lower than previously thought at 1.3%, compared with a previous estimate of 1.4%.
Sterling showed little reaction to the data.
Household Finances and Living Standards
Disposable Income and Savings
Real household disposable income per head, a measure of living standards that the Labour government aims to raise by the end of the parliamentary term, contracted by 0.8% in the first quarter, after a 1.2% rise at the end of 2025.
Households put less money aside in the first quarter with the savings ratio decreasing by 0.7 percentage points to 8.9%, driven by a fall in the contribution of non-pension saving.
Interest Rates and Future Outlook
The squeeze on households looks set to continue as the Bank of England held interest rates at 3.75% in June and investors are pricing in the first quarter-point increase by February 2027.
Britain's budget watchdog in March forecast the economy to expand 1.1%, although the projections were made before the Iran war started.
Year-on-Year GDP Comparison
Compared with a year earlier, GDP was 0.9% higher, the ONS said, revised down from a previous estimate of 1.1%, while output on a per capita basis was 0.7% higher than the year before.
(Reporting by Suban Abdulla and Andy Bruce; Editing by Sarah Young and Alex Richardson)
