Deutsche Bank’s Sanjay Raja reports that the UK economy demonstrated robust performance over the spring, with GDP rising by 0.4% quarter-on-quarter and annualised growth in the first half of the year reaching 2% [1]. This strong momentum was attributed to better-than-expected household spending, increased business investment, and stockpiling activities in the second quarter of 2026 [1]. As a result, the UK is expected to lead the G7 in growth for a second consecutive quarter, prompting forecasters to consider a marginal upgrade to the annual growth forecast, potentially to 1.1% [1].
Despite the positive start, Deutsche Bank anticipates a slowdown in the latter half of the year. Raja cites rising energy costs, higher pump prices, and ongoing budget uncertainty as factors likely to weigh on growth, particularly as dual fuel bills are expected to rise in the third quarter of 2026 [1]. Elevated fuel prices are projected to continue squeezing real disposable incomes, while uncertainty surrounding Prime Minister Burnham’s upcoming fiscal event could dampen spending [1].
Looking forward, Deutsche Bank expects growth in the second half of the year to slow to approximately 0.1% quarter-on-quarter, though the bank notes that modest upside risks are emerging for the first time in a while [1].
CONCLUSION
The UK economy outperformed expectations in the first half of the year, but Deutsche Bank warns that growth is likely to slow due to rising energy costs and fiscal uncertainty. While the outlook for the second half is subdued, there are signs of modest upside risks emerging.