July’s economic data releases showed that UK GDP returned to growth in May, increasing by a modest 0.1% despite the continued impact of the Iran war on energy costs and supply chains.

Although GDP slowed slightly in the three months to May (0.7%) compared to April (0.8%), the UK economy still showed surprising resilience. Core inflation also fell more than expected in the 12 months to June, reaching the lowest rate since March 2025.

In her last days as chancellor, Rachel Reeves reaffirmed the strength of the UK’s position amidst the disruption in the Strait of Hormuz. And yet, broader commentators remain cautious about the outlook for the rest of 2026, warning that the economy is likely to stagnate or decline in the second quarter of the year if geopolitical tensions persist.

It will be some time still before we see the impact of the newly appointed Burnham cabinet and the knock-on effects of the ongoing conflict in the Middle East. In the meantime, we review the latest statistics and what they signify for the UK economy below.

GDP – May 2026

• In the three months to May 2026 compared to the three months to February 2026, UK GDP grew by 0.7%, following a growth of 0.8% in the three months to April (revised up from 0.7%).
• Services output grew by 0.7%, falling short of the 0.9% growth recorded in the previous period (again, revised up from 0.8%). Production output matched the 0.1% growth recorded in the three months to April, whilst construction output grew by 1.6% after a revised growth of 1.3% in the previous three months.
• In the month of May 2026 alone, GDP grew by 0.1% after falling 0.1% in April 2026, despite the impact of the Iran war on energy costs. The ONS attributed this to a 0.3% rise in services, which was partially offset by falls of 0.5% in production and 0.8% in construction. The strongest contributor to monthly output was in scientific research and development, up by 5.1%.
• The International monetary Fund recently increased its forecast for annual UK GDP growth to 1% from 0.8% since its April release, but the outlook still remains uncertain overall in the wake of continued geopolitical disruption to supply chains and energy prices, as well as a change in government leadership.

Inflation – June 2026

• Core CPI (excluding energy, food, alcohol and tobacco) fell more than expected in the 12 months to June 2026, dropping to 2.6% from the 2.8% recorded in May 2026. This is the lowest rate since March 2025 and about 0.1% lower than forecasters had anticipated for this release.
• The drop in inflation is likely linked to the fall in fuel prices amidst the tentative ceasefire agreements between the US, Iran and Israel. Grant Fitzner, the chief economist at the ONS, noted that a decrease in month-on-month food (-0.2%), transport (-0.3%) and clothing (-1.2%) prices had offset price increases in other goods and services. That said, analysts remain sceptical that these rates will hold now that conflict in the Middle East has resumed.
• Whilst the fall in inflation was deemed welcome news for the new prime minister, the rate is still higher than the Bank of England’s 2% target. Leading economists predict that inflation will begin to rise again from July until the first quarter of 2027, though cooling nominal pay growth could help the Bank hold off interest rate hikes for longer.

Employment

The latest Office for National Statistics labour force and employment data show:

• The UK unemployment rate for people aged 16 and over remained at 4.9% in the three months to May 2026. This is the same as the estimate for the three months to April 2026, and 0.2% higher than the same period last year.
• UK job vacancies for April to June 2026 decreased by 7,000 (0.9%) to 712,000 compared with January to March 2026. This is almost half what the level was in 2022, which the ONS has attributed to employer reluctance to hire new staff in the three months to May.
• Youth unemployment remains a huge concern. In March to May 2026, 16.4% of people aged 16 to 24 were unemployed, compared with 14.2% last year. This is the highest level we have seen since 2014.
• The UK economic inactivity rate for working people was estimated at 20.9% in March to May 2026. This is down 0.1 percentage points on the year and 0.1 percentage points on the latest quarter.

Annual regular pay growth remained at 3.4% for a third consecutive period. Adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH), annual wage growth in real terms was 0.3% for regular pay. This was a slight increase on the previous two periods, which recorded 0.1% growth, but growth has been slowing overall over the past two years.

Insolvencies – June 2026

There were 1,845 corporate insolvencies reported in England and Wales in June 2026, which marked almost no change compared to May 2026 (1,849) but a 10% decrease compared to June 2025 (2,048). The biggest contributing category was administrations (191), which were up 45% MoM and 80% YoY. The Insolvency Service has attributed this to approximately 60 connected companies in the real estate sector entering administration. All other categories were down both on the month and year.

Experts have noted that the overall stabilisation of insolvency numbers is encouraging, but likely to be short lived due to the escalation of conflict in the Middle East since these figures were recorded. Still, there is hope that the hot weather and major sporting events could give a much-needed boost to hospitality and retail businesses this summer.

Personal insolvencies increased again in June, rising to 11,871 cases. This was 5% higher than May 2026 (11,303) and 16% higher than the same month last year, reflecting the impact of cost-of-living pressures on British households.

Recession looms, but stability may not be out of reach

As noted above, the IMF’s upgraded growth forecast makes the UK the third fastest-growing economy in the G7 this year, behind the US and Canada. However, stability and growth will largely depend on whether a lasting conflict resolution is reached in the Middle East.

The IMF’s prediction was made before the latest outbreak of hostilities, and more recent comments have been less optimistic. EY has warned that the UK faces recession if the blockade of the Strait of Hormuz lasts into 2027, suggesting that this could slow GDP growth to 0.5% this year and shrink the economy by 0.2% next year.

With that in mind, there is a growing need for Westminster to provide tangible support to help businesses deal with rising costs. Chancellor John Healey has pledged to ‘deepen’ the Treasury’s relationship with UK firms and treat the cost of doing business as seriously as the cost of living. We can expect to hear more of his plans in the Autumn Budget, which has been confirmed for 28 October.

Healey is not the only member of the new cabinet making early moves. Newly appointed Housing Secretary Angela Rayner has approved a data centre on the site of a former brewery in Shoreditch, London. Whilst this has been criticised by local people as a missed opportunity for social housing, the decision points to growing momentum behind sovereign tech and AI investment, which may instil more confidence in the market.

With Burnham’s ‘good growth in every postcode’ commitment, Healey’s business promises and Rayner’s early planning decisions, the new cabinet’s approach to economics and investment is starting to take shape. Now, business leaders and investors will be turning their attention to what the rest of 2026 might hold.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our specialists, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.