The UK economy showed remarkable resilience in Q1 2026. Buoyant consumer demand in services allowed the Kingdom to fully offset the macro shocks from the escalation in the Middle East and the blockade of trade routes.
According to the Office for National Statistics (ONS), GDP rose 0.6% quarter‑on‑quarter, accelerating from a sluggish 0.2% at the end of 2025. Annual growth was 1.1%, comfortably beating the analysts’ consensus of 0.8%.
The main statistical anomaly was March. Markets had priced in a 0.1% contraction amid US and Israeli military actions against Iran and the following fuel crisis. Instead, GDP expanded 0.3% for the month. The services sector led the recovery, supported by a pick‑up in industry and construction.
Curiously, the global geopolitical turmoil has so far not weighed on domestic business activity. The British economy has maintained the momentum gained over the winter, staying immune to external headwinds.
Strong macroeconomic figures have become a political lifeline for Keir Starmer’s cabinet. On the back of collapsing poll ratings and an imminent inflationary hit to voters’ wallets, the government needed desperately positive metrics.
But this optimism comes at a steep price for markets and borrowers. Sustained GDP growth gives the Bank of England room to tighten policy. The regulator now has scope to raise interest rates further, a move deemed necessary to curb a new wave of inflation that will inevitably be triggered by rising imported oil prices.
