Deutsche Bank’s Chief UK Economist Sanjay Raja notes that United Kingdom (UK) Gross Domestic Product (GDP) in February rose 0.5% m/m, beating expectations and prompting an upgrade of Q1-26 GDP to 0.5–0.6% q/q. He highlights broad strength across Services, Oil and energy production, and Construction, but warns that the Iran energy shock and higher fuel bills are likely to slow growth into Q2-26 and beyond.
Growth beats forecasts before energy shock
“February GDP smashed expectations – including our above-consensus forecast, coming in at a thumping 0.5% m/m. Don’t miss the upward revision to January GDP either – we flagged this in our nowcast note last week noting that the preliminary print was at odds with our modelled expectations.”
“We take two things from this. Forecasters were too pessimistic about UK growth to start the year. Our nowcast models now show Q1-26 GDP growth returning back to our original forecast from the start of the year: 0.5-0.6% q/q, reflecting some positive payback after a very sluggish second half in 2025.”
“The good news is that the UK likely entered the energy shock on a stronger footing than many expected. Q1-26 GDP growth will likely hit more than double the quarterly rate many forecasters expected, also lifting annual GDP growth projections. The bad news is that upward GDP momentum won’t last.”
“Households will have already started to feel the impact of the Iran energy shock, impacting disposable incomes and discretionary spending. Pump prices are up over 20% since the oil shock occurred. And dual fuel bills are due to rise by a similar amount over the summer.”
“Businesses will also likely be pulling back investment plans, hiring plans, and lowering wage growth as a result. As such, expect more sluggish growth into Q2-26 (and beyond).””
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/uk-gdp-strong-start-faces-energy-squeeze-deutsche-bank-202604160655
