Deutsche Bank Research, led by Sanjay Raja and Maui Brennan, reports that the United Kingdom's economy has demonstrated remarkable resilience in the face of the Iran-related energy shock in 2026. The UK’s Gross Domestic Product (GDP) grew by 0.6% quarter-on-quarter in Q1 and 0.4% in Q2, surpassing forecaster expectations for two consecutive quarters. This performance positions the UK as the fastest-growing economy in the G7 so far this year, with an annualized growth rate of 2% [1].
Key drivers behind this robust growth include softer inflation, strong household spending—which increased by 0.85% in the first half of 2026—robust business investment, and stockpiling activities. Deutsche Bank notes that summer survey data, including the August flash composite PMI index rising to 52.5 from 52.2, indicate firming economic activity and further support their positive outlook [1].
Looking ahead, Deutsche Bank projects GDP growth at 1.1% for 2026 but acknowledges upside risks, suggesting that growth could exceed this forecast. The bank currently projects GDP growth at 0.1% quarter-on-quarter for both Q3 and Q4, but a strong carry-over effect and sustained momentum could push Q3 growth to 0.2% quarter-on-quarter. Analysts highlight that forecasters may need to revise their projections upward as more positive data emerges [1].
Overall, Deutsche Bank emphasizes that the UK economy continues to outperform expectations, with risks skewed toward further upward revisions in GDP forecasts for the remainder of 2026 [1].
CONCLUSION
The UK economy has outperformed expectations, becoming the fastest-growing G7 nation in 2026 despite the Iran-related energy shock. Deutsche Bank sees upside risks to its current GDP forecast, suggesting further growth revisions may be forthcoming. Market sentiment is positive, with strong household spending and business investment driving continued resilience.