The Bank of England thought the British economy would barely move in the second quarter. Its April projection put underlying growth at just 0.1 per cent as the closure of the Strait of Hormuz drove oil and gas prices sharply higher. Instead, official figures published on 13 August 2026 showed real gross domestic product expanded 0.4 per cent between April and June — four times what Threadneedle Street had pencilled in, and enough to leave output 1.2 per cent above the same quarter of 2025. That surprise changes the arithmetic for interest rates and for anyone forecasting the second half of the year. It does not mean the shock is over. Most of the energy pain is still working its way through.

Inside the second-quarter numbers

The Office for National Statistics reported growth slowing from 0.6 per cent in the first quarter, but comfortably beating the near-stagnation the Bank had modelled. Services did the heavy lifting, expanding 0.5 per cent, with information and communication the standout at 2.7 per cent. Construction added 0.3 per cent. Production was flat, as a 2.3 per cent fall in electricity and gas Supply cancelled out gains elsewhere in industry.

Real GDP per head — a closer proxy for living standards, because it strips out population growth — rose 0.4 per cent on the quarter and 1.0 per cent on the year. That matters: for much of 2023 and 2024 the UK grew in aggregate while output per person went sideways.

Business Investment held up when it was supposed to buckle

The expenditure breakdown contains the most interesting detail. Business investment rose 1.7 per cent and gross fixed Capital formation 1.2 per cent, despite an energy environment most forecasters expected to freeze capital spending outright. The EY ITEM Club still expects business investment to fall 0.7 per cent across 2026 as a whole — so the quarter looks like resilience rather than a trend break.

Household consumption grew a modest 0.3 per cent. Government consumption fell 0.3 per cent, partly reflecting reduced education spending during June’s heat-related school closures.

What actually drove the June rebound

The quarterly figure conceals a bumpy path. April contracted 0.1 per cent, May was revised down to zero from an initially reported 0.1 per cent expansion, and June then rebounded 0.3 per cent — well ahead of the small decline most economists expected. Rolling three-month growth to June stood at 0.4 per cent, the seventh consecutive period of expansion.

June’s strength was concentrated in services, up 0.4 per cent, led by professional, scientific and administrative activities. Production fell 0.2 per cent. Construction slipped 0.1 per cent, with public housing new work down a striking 11.0 per cent.

Some of the bounce was one-off. ONS noted that firms in manufacturing, wholesale and hospitality cited the FIFA World Cup as a reason for higher turnover, while warm weather lifted retail and accommodation. Neither repeats in the third quarter. Anyone reading June as the new run rate will be disappointed.

The energy shock has not finished arriving

Here is the tension at the heart of the data. The quarter looked resilient partly because the worst of the energy pass-through had not yet reached households. Ofgem’s price cap rose 13 per cent from 1 July 2026 — after the quarter ended — taking typical electricity to 26.11p per kWh and gas to 7.33p per kWh including VAT. The regulator blamed higher wholesale gas prices caused by the Middle East conflict.

CPI Inflation was 2.6 per cent in June, down from 2.8 per cent in May, flattered by falling motor fuel prices and food inflation of just 1.7 per cent. Services inflation was 3.6 per cent. The Bank expects headline inflation to climb towards a peak of roughly 3.3 per cent, and EY ITEM Club sees 3.5 per cent by year end. The squeeze on real incomes is arriving in the third and fourth quarters, not the second.

Why the Bank of England is stuck

The Monetary Policy Committee held Bank Rate at 3.75 per cent on 30 July 2026, but the vote was an unusually tense 6–3 — the three dissenters wanting an increase to 4 per cent, not a cut. Their concern is second-round effects: the risk that higher energy costs feed into wage and price setting for 2027. That risk, the minutes said, “is greater the longer higher energy prices persist”.

Oil was around $84 a barrel and UK Natural Gas futures around 136 pence per therm in late July, with the Committee judging energy price risks skewed to the upside. Better-than-expected GDP arguably strengthens the hawks’ hand: it removes the argument that the economy needs support. The next decision comes on 17 September 2026.

The labour market is the soft underbelly

Employment data undercuts the growth story. In the March-to-May period, Unemployment was 4.9 per cent, up 0.2 percentage points on the year, and the employment rate slipped to 75.1 per cent. Vacancies fell to 712,000 and payrolled employees were down 85,000 on the year. Regular pay grew 3.4 per cent in nominal terms — barely 0.3 per cent in real terms once CPIH is stripped out. EY ITEM Club expects unemployment to reach 5.3 per cent by the end of 2026.

An economy adding output while shedding payrolled jobs is one where growth comes from productivity rather than headcount. That can be healthy. It is also fragile if Demand weakens.

What to watch through the autumn

Three things will decide whether the second quarter was a turning point or a pause. First, the Blue Book 2026, published on 20 August, which brings comprehensive revisions and could reshape the recent growth profile. Second, whether the July price cap increase crushes the quarter’s modest consumption growth. Third, the Strait of Hormuz: EY ITEM Club’s downside scenario, in which the waterway stays closed into 2027, has GDP growing just 0.5 per cent in 2026 and contracting 0.2 per cent the year after.

A better quarter, not a recovery

The Office for Budget Responsibility forecast 1.1 per cent growth for 2026 in its March outlook; EY ITEM Club now expects 0.9 per cent. Neither is strong. What the data shows is that the UK absorbed a severe energy supply shock without stalling — services kept expanding, firms kept investing, output per head rose. But the price cap increase landed in July, inflation is heading up rather than down, the labour market is loosening, and rate-setters are debating tightening rather than easing. Resilience in the second quarter is not the same as momentum into the third.