UK GDP set to record mild growth in Q2

The United Kingdom’s (UK) Office for National Statistics will release the preliminary estimate of the second-quarter Gross Domestic Product (GDP) on Thursday. Market analysts anticipate a 0.4% growth in the three months to June, after a modest 0.6% advance in the first quarter of 2026. Annual progress is expected at 1.1%, up from the 0.9% posted in March.

As usual, preliminary GDP estimates will have a large impact on the British Pound (GBP), though they are subject to revisions over the next couple of months. The GDP figures will be released alongside a myriad of other figures, including the Goods Trade Balance and Industrial and Manufacturing Production. Generally speaking, market participants anticipate tepid outcomes, as the ongoing war in the Middle East takes its toll.

UK Gross Domestic Product forecast: What numbers could tell us

The anticipated tepid UK economic progress is directly linked to a slowdown in consumer spending, driven by tighter credit conditions and weak real wage growth. Generally speaking, the figures are expected to weigh on the British Pound, though the impact may be mitigated if the outcome meets expectations.

Economic growth is not part of the Bank of England (BoE) mandate, but GDP developments are clearly correlated with monetary policy. The BoE left its key interest rate unchanged at 3.75%, in line with economists’ expectations when it met early in July. The Monetary Policy Committee (MPC), however, was divided, with three ouf ot nine members voting to lift the Bank Rate by 25 basis points. Policymakers agreed that inflation risks remain skewed to the upside, with pressure coming from higher energy prices, the latter of which is the result of the war in the Middle East.

Market players are betting on additional interest rate hikes in the near future, yet keeping the policy rate above the neutral range is unsustainable without economic progress. A poor GDP reading, then, should suggest no changes to interest rates and hence drag the GBP lower. The opposite scenario is also valid, with stronger-than-anticipated figures providing GBP with a near-term boost.

There is still one more sticky factor to consider in this equation: inflation. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.8% in the 12 months to June 2026, down from 3% the previous month. Indeed, inflation decreased globally in June, as market players were hopeful the United States (US) and Iran would be able to clinch a deal. The Memorandum of Understanding (MoU) that called for a truce between the two conflicting nations pushed Oil prices sharply down in the month, easing inflationary pressures worldwide.

Peace in the Middle East, however, is no longer an option. Tit-for-tat attacks continue, while talks have stalled. Oil prices are back up, although still far from their post-war peaks. Nevertheless, continued tensions around the Strait of Hormuz mean inflationary pressures will likely rise from July on.

When will the UK release Q2 GDP, and how could it affect GBP/USD?

As previously noted, the UK will release the preliminary estimate of Q2 GDP on Thursday at 06:00 GMT. Data is expected to show moderated growth in the three months to June, and a reading within expectations is unlikely to have a relevant impact on GBP/USD.

Ahead of the announcement, the pair trades above the 1.3500 mark, at its highest in roughly a month, as the US Dollar (USD) can’t recover from the poor employment shock in the July Nonfarm Payrolls (NFP) report. The figures weighed on the Federal Reserve (Fed) rate-hike odds, while CPI data on Wednesday showed inflation rose at an annual rate of 3.4% in July, as expected.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “The GBP/USD pair is technically bullish approaching the July monthly high at 1.3558. The Q2 GDP report may introduce some noise, but as long as the pair remains above the 1.3480 price zone, the bullish case will remain in place. A better-than-anticipated outcome is likely to push the pair closer to the 1.3600 mark, although sustained gains around the level would depend on market sentiment and the consequent USD strength or weakness.”

Bednarik adds: “A dismal outcome could push the pair lower, initially towards 1.3480 and later closer to the 1.3400 mark. Once the dust settles, however, speculative interest will return to the usual war-related trading.”