UK Economy's Strong Start Fades as Temporary Tailwinds Disappear

The UK economy's growth in the second quarter was driven by temporary factors that have since faded. The de-escalation of the Middle East conflict and the World Cup contributed to strong economic data, but these tailwinds are disappearing.

UK GDP accelerated to 0.3% in June, a potentially strong start to the year. However, Britain has a history of experiencing slower growth in the second half of the year compared to the first.

A prolonged blockade of the Strait of Hormuz would pose a significant risk to the UK economy, with Treasury forecasts suggesting that growth could slow to 0.9% in 2026 and 0.3% in 2027 if the route remains closed through the end of this year.

Expectations for Bank of England monetary tightening remain unchanged, but investors may be overly optimistic about a rate hike by December 2026 and another by September 2027.