Deutsche Bank Research, led by Sanjay Raja and Maui Brennan, highlights the United Kingdom (UK) economy\u2019s surprising resilience to the Iran-related energy shock in 2026. Gross Domestic Product (GDP) grew 0.6% q-o-q in Q1 and 0.4% in Q2, making the UK the fastest-growing G7 economy. Softer inflation, strong household spending, robust business investment and stockpiling support Deutsche Bank\u2019s view that 2026 GDP could exceed its 1.1% forecast.<\/p>\n
Growth beats expectations despite energy shock<\/p>\n
“But after a thumping Q1-26, where GDP growth outshot forecaster expectations, rising by 0.6% q-o-q, Q2-26 GDP growth didn\u2019t disappoint either. For a second straight quarter, the UK economy outshot forecasters\u2019 expectations, expanding by 0.4% q-o-q. To be sure, the UK is now the fastest growing economy in the G7 so far this year, with the economy growing at an annualised pace of 2%.”<\/p>\n
“And yet again, forecasters will have been left revising up their projections with more upside risks brewing around 2026 GDP forecasts. Crucially, the recent upside in growth begs the question: why has the economy been so resilient in spite of the Iran energy shock? Indeed, household spending shot up by 0.85% in H1-26.”<\/p>\n
“Big picture, UK GDP continues to show more resilience than many expected. Summer survey data have already outshot our own expectations, with the latest PMI data pointing to a firming in activity (the August flash composite index jumped to 52.5 from 52.2). And we now see more upside to our H2-26 growth projections, particularly in Q3-26.”<\/p>\n
“A strong carry-over effect, plus sustained momentum could see GDP push a tenth higher to 0.2% q-o-q (our current projection has GDP growth projected at 0.1% q-o-q in Q3 and Q4).”<\/p>\n
“All in all, while we see GDP<\/a> growth tracking at 1.1% this year, there\u2019s some upside risk brewing. Risks are skewed to yet another upward revision in the coming months.”<\/p>\n