Q2 2026 UK macro roundup (Apr-Jun)

Written by Luke Heritage

August 22nd, 2026

Q2 2026 (April to June) was the quarter the UK economy lost the momentum it carried out of Q1. GDP grew 0.4% quarter-on-quarter, down from Q1's 0.6%, as an early-quarter contraction in April gave way to a flat May and only a partial rebound in June. Inflation drifted down from 2.8% to 2.6%, unemployment held at 4.9%, and the Bank of England kept Bank Rate at 3.75% throughout, though its vote split narrowed from 8-1 to 7-2 as hawkish conviction built. Underneath the numbers, this was also the quarter UK politics took over the headlines: May's local elections delivered Reform UK's largest council haul in English local election history, and the quarter closed with Keir Starmer's resignation on 22 June, opening a leadership contest that would run into July.

Growth and inflation

GDP told a genuine story of loss of momentum within the quarter, not just between quarters. April contracted 0.1% -- the first monthly fall since August 2025 -- driven by a 0.2% drop in services only partly offset by a 0.1% rise in construction. May was flat, revised down to 0.0% from the +0.1% first reported (a reminder that these monthly prints are provisional). June recovered to +0.3%, driven by a 0.4% rise in services partially offset by falls of 0.2% in production and 0.1% in construction. Taken together, the quarter grew 0.4%, with services doing almost all the work: services output rose 0.5% (down from Q1's 0.8%), production was flat across the quarter, and construction rose 0.3% but remained 2.0% lower than a year earlier. Within services, information and communication and professional, scientific and technical activities were the largest positive contributors; within construction, infrastructure new work was the standout, up 1.9%. Inflation eased gently rather than dramatically. CPI held at 2.8% year-on-year in both April and May -- unchanged from April, though down from March's 3.3% -- before easing to 2.6% in June, the lowest reading since September 2024. May's print had an odd driver: transport inflation spiked to 6.8% yearon-year, up sharply from 4.5% in April, on a combination of air fares, motor fuel and a one-off correction to historical Vehicle Excise Duty data, with average petrol prices hitting 157.4p/litre, their highest since November 2022. That transport spike proved temporary rather than structural, and by June, easing fuel and diesel prices were doing more to pull the headline rate down than any single new pressure was pushing it up.

The labour market and consumers

The labour market loosened gradually rather than sharply across the quarter, and the clearest single readout is the "three months to June" data released by the ONS on 18 August -- which is to say, this genuinely is the quarter's own number, not a lagged read on an earlier period. ILO unemployment held at 4.9%, up 0.2 percentage points on the year but down 0.1 percentage points on the prior three-month period, while the employment rate for 16-64 year-olds stood at 75.1% (down 0.2 points on the year, up 0.1 on the quarter) and economic inactivity held essentially flat at 20.9%. Wage growth kept its nowfamiliar private/public split: regular pay grew 3.5% annually across the whole economy in the three months to June, with public-sector regular pay up a much stronger 6.1% against 2.8% in the private sector -- in real, CPI-adjusted terms, regular pay grew a modest but positive 0.7%, and total pay 1.3%. Consumers, for their part, kept spending through a quarter that gave them plenty of reasons not to. Retail sales volumes rose a strong 1.2% in May -- the best monthly reading in four months, helped by warm weather and promotional activity -- before adding a further 1.0% in June, leaving the broader Q2 trend up 0.6% versus Q1. Business sentiment told a noticeably weaker story than the consumer data: the S&P Global/CIPS Composite PMI, which had been comfortably in expansion territory in April at 52.6, fell to 49.7 in May -- its first sub-50 reading in over a year -- and eased further to a final 49.3 in June, marking a second consecutive month of contraction as new business volumes fell at their fastest pace in over three years. Consumer confidence stayed subdued through the back half of the quarter too: GfK's index was broadly flat month-on-month heading into June at around -23, but that headline stability masked real deterioration underneath, with confidence among 16-29 year-olds collapsing 11 points to a two-year low and higher earners (£50k-plus) turning negative on their own outlook for the first time.

Politics and markets

The Bank of England held Bank Rate at 3.75% at both meetings that fell inside the quarter, but the direction of travel on the Committee was unmistakable. At the April meeting, the vote was 8-1 in favour of holding; by the 17 June meeting, that had narrowed to 7-2, with Megan Greene and Huw Pill both voting for an immediate quarter-point hike to 4%. The Bank's own minutes from June quantified just how much the Middle East-driven energy shock had already tightened financial conditions ahead of any rate move: two-year overnight swap rates were running around 70 basis points above their pre-conflict level, two-year fixed mortgage rates were roughly 80 basis points higher, and investment-grade corporate bond yields had risen by about 50 basis points over the same window. The Bank's own stock of gilts held for monetary policy purposes stood at £522 billion as of 17 June, a figure worth watching as the quantitative tightening programme continues to add to gilt supply. Politically, this was the quarter everything changed. Labour's May local election results were disastrous by any measure -- Reform UK won control of 12 councils, the largest "third party" gain in English local election history -- and the pressure that generated on Keir Starmer's leadership never really eased. On 21 May, the government postponed a planned September rise in fuel duty as part of a package to support households and energy-intensive industry through the ongoing energy shock. Then, on 22 June, Starmer announced his resignation, triggering a leadership contest that would run through the following month (it was won, for context, by Andy Burnham on 20 July, with John Healey installed as Chancellor -- a resolution that fell just outside this quarter but was the direct continuation of what began here). On the fiscal side, the picture worsened as the quarter went on before a late reprieve: April borrowing came in at £24.3 billion, the highest April figure since the pandemic and £3.4 billion above the OBR's own forecast; May borrowing was £23.3 billion, the second-highest May on record; but June borrowing eased sharply to £16.0 billion, some 33.1% below June 2025 and slightly under the OBR's forecast -- a rare piece of unambiguously good fiscal news to close the quarter on. Across the three months, that's a combined £63.6 billion of net borrowing, with public sector net debt standing at a provisional 95.1% of GDP as of the May reading, a level last seen in the early 1960s. Markets reflected the mixed and increasingly political picture: the FTSE 100 closed June around 10,897 and the more domestically-focused FTSE 250 underperformed at roughly 23,147, a large-cap/mid-cap divergence that speaks to how much of the quarter's late-stage uncertainty was specifically about UK political risk rather than the global backdrop.

Conclusion and what's next?

Q2 2026 was a quarter of two distinct halves for the UK economy, in growth terms and in political terms alike. Growth cooled from Q1's pace without collapsing, inflation eased gently, and the labour market loosened gradually -- a genuinely unremarkable set of economic data by the standards of the past two years. Politically, though, the quarter ended in genuine upheaval, with a Prime Minister's resignation landing right as the growth and business-sentiment data were softening. The Bank of England's narrowing vote (8-1 to 7-2) shows a Committee growing less comfortable holding rates as energyshock-driven inflation risk persists, even as growth data gave it little reason to hike outright. With the leadership contest now resolved and a new government in place from 20 July, and a confirmed Autumn Budget on 28 October 2026, Q3's UK macro roundup has a genuinely different backdrop to work with: a settled political picture, but a fiscal event on the horizon that will shape the rest of the year.

Sources

Bank of England April 2026 Monetary Policy Summary and Minutes

Bank of England June 2026 Monetary Policy Summary and Minutes

NIQ/GfK — UK Consumer Confidence Index, June 2026

ONS GDP first quarterly estimate, UK: April to June 2026

ONS Consumer price inflation, UK: April 2026

ONS Consumer price inflation, UK: June 2026

ONS Consumer price inflation, UK: May 2026

ONS GDP monthly estimate, UK: April 2026

ONS GDP monthly estimate, UK: June 2026

ONS GDP monthly estimate, UK: May 2026

ONS Labour market overview, UK: August 2026