GDP rebound exceeds UBS expectations
The UK economy is showing signs of stronger momentum than previously expected, with second-quarter growth now tracking above UBS forecasts after gross domestic product returned to expansion in May. The latest figures suggest that the impact of the Middle East energy crisis has so far been more limited than initially anticipated.
Economic output increased by 0.1% month on month in May, outperforming forecasts that had pointed to no growth and reversing the 0.1% contraction recorded in April.
UBS estimates that activity across April and May was consistent with quarterly growth of around 0.4%, significantly above its previous projection of 0.1% for the second quarter.
Services sector leads the recovery
The improvement was mainly supported by the services sector, which expanded by 0.3% during May. Professional, scientific and technical activities, along with administrative services, helped drive the recovery after both areas experienced declines in April.
However, other parts of the economy remained under pressure. Industrial production fell 0.5%, while construction output declined 0.8%, mainly due to weaker activity in repair and maintenance work.
UBS raises near-term outlook but keeps caution
UBS economists said the latest GDP figures represent an upside risk to their second-quarter forecast and could also improve expectations for average annual growth in 2026.
Despite the stronger-than-expected start to the year, the bank maintained its forecasts of 1.0% economic growth for 2026 and 1.1% for 2027.
Analysts warned that stronger activity during the first half of the year could be followed by slower momentum later on. UBS highlighted the possibility of a correction in the second half as some temporary factors supporting recent growth fade.
“We remain cautious about some payback in H2,” UBS said, pointing to potential seasonal effects that may have contributed to the stronger first-half performance.
Economic risks remain despite improvement
Although the latest data provide a more positive picture of the UK economy, uncertainty remains around energy prices, inflation pressures and global geopolitical developments.
The recovery will depend on whether household spending, business investment and external demand can maintain momentum as the year progresses.
