UK economic growth has shown an unexpectedly strong start to 2026, but analysts are warning that the momentum may already be peaking as escalating conflict in the Middle East begins to cast a long shadow over the global outlook.
Official data indicate that real GDP expanded by 0.6 per cent in the first quarter, outperforming expectations. However, economists caution that this may prove to be a high-water mark, with energy market disruption now emerging as a key risk to activity for the remainder of the year.
Rising geopolitical tensions have pushed up global energy prices, feeding through into higher input costs for UK businesses and placing renewed pressure on households already contending with subdued wage growth.
Those pressures are expected to weigh on discretionary spending in particular, with economists warning that consumer resilience seen at the start of the year could fade as price pressures filter through supply chains.
The labour market remains another area of concern. Unemployment has stayed elevated in early 2026, while job vacancies continue to decline, signalling a loosening in labour demand after several years of tight conditions.
The increase in spare capacity is now feeding through into slower earnings growth, putting further strain on real incomes and limiting the scope for household spending growth to accelerate.
Regional performance, however, remains uneven. London, the South East and the North East are forecast to lead growth over the course of 2026, with the capital expected to outperform the rest of the UK.
Forecasts suggest London will record growth of 1.7 per cent this year, rising to 1.8 per cent in 2027, supported by stronger business activity and improved sentiment in key service sectors.
Inflation remains sticky. Consumer prices rose by 3.1 per cent in the first quarter, with only a modest easing expected in the second. While regulated energy price caps are providing temporary relief to households, underlying cost pressures remain elevated compared with pre-conflict forecasts.
Economists warn that any sustained escalation in global energy markets would risk reversing recent progress on disinflation, forcing households to absorb higher costs over a prolonged period.
Globally, the conflict in Iran has become the dominant driver of near-term economic conditions, with higher energy prices and weakening sentiment increasingly feeding through into activity data across major economies.
Analysts say the outlook remains heavily dependent on whether a credible path to de-escalation emerges, with risks to growth still skewed firmly to the downside.
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