UK Economic Comment: UK GDP: May rebound signals upside risks for Q2

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UK Economic Comment: UK GDP: May rebound signals upside risks for Q2

DP in April and May would be consistent with

Q2 GDP growth of 0.4% q/q, clearly indicating an upside risk to our forecast of +0.1%

q/q. Similar to the Eurozone, soft and hard data sent mixed signals in Q2: the Composite

PMI declined to 50.5 from 52.6 in Q1, pointing to near-stagnation in activity, while GDP

data for April and May suggest a much more resilient economy. Although today's GDP

release clearly implies an upside risk to our Q2 GDP forecast and, by extension, the 2026

annual average, we remain cautious about some payback in H2. This pattern has been

evident in recent years and may reflect residual seasonality, which appears to boost

growth in H1 while dampening it in H2. Overall, we continue to forecast UK GDP growth

of 1.0% in 2026 and 1.1% in 2027.

Domestic political uncertainty likely to linger for some time

With 349 MPs backing Andy Burnham as the new Labour Party leader, effectively ruling

out any rival nomination, he is now all but certain to become prime minister on 20 July.

While uncertainty around the leadership transition has largely receded, questions remain

about the new government's policy agenda. As we highlighted in UK leadership

transition: What to watch, Burnham's first major speech emphasised a long-term

growth strategy, significant devolution of powers from Whitehall to regional authorities,

and adherence to fiscal rules. Against this backdrop, the Autumn Budget will be the next

key milestone. The main challenge for the new leadership will be reconciling its growth

ambitions and plans for higher public investment with fiscal rules, while also addressing

spending pressures related to defence, energy and other priorities. We therefore think