United Kingdom Gross Domestic Product (GDP) rose by 0.5% month-on-month in February, surpassing expectations and prompting Deutsche Bank to upgrade its Q1-26 GDP forecast to 0.5–0.6% quarter-on-quarter. This strong performance was attributed to broad-based growth across Services, Oil and energy production, and Construction sectors [1]. Additionally, there was an upward revision to January GDP, further highlighting the robust start to the year [1].
Deutsche Bank’s Chief UK Economist, Sanjay Raja, emphasized that forecasters were overly pessimistic about UK growth at the start of the year. The nowcast models now indicate that Q1-26 GDP growth will be more than double the quarterly rate many forecasters had expected, which also lifts annual GDP growth projections [1].
However, Raja cautioned that this positive momentum is unlikely to persist. The Iran energy shock has led to pump prices rising over 20% since the oil shock, with dual fuel bills expected to increase by a similar amount over the summer. These developments are anticipated to impact household disposable incomes and discretionary spending, as well as prompt businesses to scale back investment and hiring plans, and lower wage growth [1].
Looking ahead, Deutsche Bank expects more sluggish growth into Q2-26 and beyond, as the effects of higher energy costs and reduced consumer and business spending take hold [1].
CONCLUSION
UK GDP delivered a stronger-than-expected performance in early 2026, but Deutsche Bank warns that the positive momentum is likely to fade due to the Iran energy shock and rising fuel costs. The market takeaway is that while the UK economy started the year on a strong footing, headwinds from higher energy prices are expected to slow growth in the coming quarters.