The UK economy delivered a positive surprise in Q2, with GDP growing 0.4% between April and June — ahead of economist expectations despite ongoing cost pressures on businesses and households. Services and manufacturing were the main drivers, with warm weather and the World Cup providing a boost to hospitality and leisure. Chancellor John Healey highlighted the UK's position as the fastest-growing G7 economy this year, while acknowledging the need to "drive growth in every postcode."
The labour market presents a more subdued picture. Job vacancies have fallen to their lowest level in over five years, and payrolled employment is down year-on-year, though unemployment has remained steady at 4.9%. Wage growth continues (regular earnings up 3.5% annually), but graduate opportunities have nearly halved over the past twelve months, reflecting intensifying competition across the market.
Inflation rose to 2.9% in July, driven primarily by higher energy costs following Ofgem's 13% increase to the price cap, alongside broader pressures linked to the Middle East conflict. Retail spending also softened, with hot weather dampening non-food sales, though food and drink performed well, buoyed by England's World Cup run.
On the fiscal front, government borrowing came in well above forecast, which may constrain the Chancellor's options ahead of the Autumn Budget on 28 October.
In summary: the UK economy is showing welcome resilience, though underlying cost pressures and a cooling labour market remain key themes to watch.
Source: Quilter Economic Review - September 2026, review of August
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