UK Economy Outperforms Expectations as Income Growth Revision Hands Healey Pre-Budget Boost

Britain’s economy grew more strongly than first thought in the first half of the year, according to revised official figures that offer a timely lift for Chancellor John Healey as he puts the finishing touches to his first budget next month.

The Office for National Statistics said gross domestic product rose by 0.5% in the second quarter, up from an earlier estimate of 0.4%, while household income per head climbed 1.1% over the first six months of 2026. The upgrade means the UK matched the pace of growth seen in the United States over the same period and pushed the country up the G7 rankings, trailing only Canada, which posted growth of 1.3% in both the first and second quarters.

The figures land at a politically useful moment. They arrive just weeks before Healey delivers his maiden budget, and follow a period in which government forecasters and markets alike have been nervously watching how the economy would cope with the fallout from more than seven months of conflict in the Middle East, a spike in energy costs, and higher borrowing rates.

Analysts said the resilience on display should not be dismissed as a statistical quirk. Business investment rose 1.8% in the second quarter and is now running 5.2% higher than the same period a year earlier, a sign that firms have kept spending despite the uncertain backdrop. Export figures also improved, according to economists tracking the trade data, adding a second pillar of support beneath the headline growth number alongside the more familiar driver of UK expansion: consumer-facing services.

Households, meanwhile, appear to be doing more than simply spending their extra income. The savings ratio ticked up from 8.6% in the first quarter to 8.8% in the second, suggesting that at least some of the improvement in pay packets is being squirrelled away rather than funnelled straight back into the economy — a pattern that could temper future growth even as it cushions family finances against future shocks.

Market reaction was swift and positive. Sterling touched a six-week high against the euro and rose against the dollar, while government bond yields eased, with two-year gilts dropping to 4.86% and ten-year yields slipping to 5.356%. Oil prices, which had surged past $100 a barrel on renewed doubts about a lasting Middle East ceasefire, also softened in recent days, taking some pressure off the inflation outlook.

That inflation backdrop remains the central tension in the story. With consumer prices running at 3.1%, comfortably above the Bank of England’s 2% target, some traders now argue that an economy growing this briskly no longer needs quite as much monetary support. The suggestion that Britain’s economy is “running hot” could feed into a more hawkish stance from Threadneedle Street, even as the government welcomes the growth figures as vindication of its economic approach.

Commentators have also pointed to a political dimension. The so-called “Burnham bounce” — a surge in business and consumer confidence that some analysts trace to Andy Burnham’s rise to the premiership via the Makerfield byelection in May — has been cited as one possible factor behind the improved sentiment feeding into the data. Whether that effect is real or a convenient shorthand for a broader mood shift, the practical upshot is the same: a government that had braced for difficult headlines ahead of a tax-and-spending statement instead gets to make its case from a position of relative strength.

Fund managers were quick to frame the release in favourable terms for the new administration. The upgrade follows earlier data that had already pointed to underlying resilience since the outbreak of hostilities between the US, Israel and Iran in February, and taken together the figures suggest the UK’s service-dominated economy has proved more durable than many feared when energy prices first spiked.

Still, the picture is not without caveats. Higher borrowing costs, the risk of renewed oil price shocks should diplomatic efforts in the Middle East falter, and above-target inflation all mean the Bank of England faces a delicate balancing act in the months ahead. For Healey, the immediate task is to convert a moment of market goodwill into a budget that keeps both the economy’s momentum and the numbers on the public finances moving in the right direction.