The UK GDP grew by 0.4 percent in the second quarter, according to the ONS's preliminary estimate, slowing after a 0.6 percent increase in the first quarter. Year-on-year, the economy is 1.2 percent larger than in the same quarter last year. The result fully matched economists' forecasts.

The main driver of growth was the services sector, which added 0.5 percent. Construction made a modest positive contribution, increasing by 0.3 percent, while industrial production showed no growth, recording zero growth for the quarter. This structure makes the economy noticeably dependent on one segment, as services account for about four-fifths of the UK GDP.

Monthly breakdowns, published simultaneously, explain how the quarter unfolded. GDP grew by 0.3 percent in June after zero growth in May, with the May figure revised downward from the previously published 0.1 percent, following an unchanged 0.1 percent decline in April. In other words, the quarter began weakly and was pulled up exclusively by a strong June.

The context of last year makes the current figures look much more convincing. In 2025, the UK economy was virtually stagnant, with growth of 0.2 percent in the second quarter and 0.1 percent in both the third and fourth quarters. In this context, consecutive growth of 0.6 and 0.4 percent in the first two quarters of 2026 signals a noticeable acceleration, with an annual growth of 1.3 percent recorded for 2025.

Per capita figures confirm that the growth is real, rather than explained solely by demographics. Real GDP per capita increased by 0.4 percent for the quarter and by 1.0 percent year-on-year. In comparison, throughout much of 2025, this figure showed little change, with zero dynamics in the third and fourth quarters.

The most interesting aspect for monetary policy was the block of price indicators, which went almost unnoticed. Nominal GDP rose by 0.8 percent for the quarter and by 4.1 percent year-on-year. Meanwhile, the GDP deflator, the broadest indicator of inflation in the domestic economy, increased by only 0.4 percent for the quarter compared to 1.1 percent in the first quarter. Year-on-year, the deflator stood at 2.9 percent, with a significant contribution from household expenditures, exports, and gross capital formation. This sharp quarterly deceleration in the deflator represents a hidden argument for the doves at the Bank of England, which weakened the British pound yesterday.

Unlike the consumer price index, the GDP deflator encompasses the entire domestic economy rather than just consumer spending, reflecting changes in relative export-to-import prices. Its nearly threefold slowdown over the quarter indicates that internal price pressures in the UK economy are noticeably cooling, even in the face of the external energy shock from the conflict surrounding the Strait of Hormuz.

For the BoE, the report presents a mixed but rather calming picture. The central bank maintained the rate at 3.75 percent at the last meeting, with a 6-3 vote, while Huw Pill, Megan Greene, and Catherine Mann advocated for an immediate increase. Moderate but sustainable growth at 0.4 percent, combined with a slowing deflator, does not give hawks any new arguments, and there is also no obvious weakness that would justify a rate cut. Traders continue to assess the probability of a rate hike in September at just above 50 percent, and the statistics have not significantly shifted this assessment.