UK Economy Revised Upward to 0.5% Growth in Q2, Greggs Plans 740 Job Cuts Amid Sales Pick-up

Introduction

The United Kingdom's economic performance in the second quarter of 2026 has been revised upwards, indicating a slightly more robust expansion than initially reported. The Office for National Statistics (ONS) has adjusted the Gross Domestic Product (GDP) growth for April-June to 0.5%, an increase from the preliminary estimate of 0.4%. This revision offers a welcome, albeit modest, piece of positive economic news for Chancellor John Healey as he prepares the upcoming budget. The revised figures suggest that the economy handed over by his predecessor, Rachel Reeves, was marginally larger than previously understood.

Key Details

• Q2 GDP Growth Revised: UK economic growth in April-June 2026 revised to 0.5% from 0.4%.
• Sectoral Performance: Services sector grew by 0.6%, construction by 0.8%, while the production sector contracted by 0.1%.
• 2025 Growth Lowered: ONS revised down the estimate for overall 2025 growth.
• Greggs Job Cuts: Bakery chain Greggs proposes cutting up to 740 jobs despite a 7.7% rise in Q3 sales.
• Energy Bill Shock: Typical household energy bills in Great Britain forecast to rise by £276 annually from January 2027.
• Business Investment Boost: Business investment increased by 1.8% in Q2, potentially driven by AI advancements.
• Household Savings Rise: The household saving ratio increased to 8.8% in Q2.
• Housing Market Slowdown: Annual house price growth slowed to 0.8%, the lowest since July 2024.

Background

The upward revision to Q2 GDP growth, attributed by the ONS to annual improvements in economic measurement and updated data sources, particularly for the services sector, paints a more favourable picture of the economy's performance in the first half of the year. This comes despite geopolitical disruptions, such as the ongoing conflict in Iran, which has had implications for global markets and supply chains. While the overall growth for 2025 has been revised downwards, the stronger performance in the latest quarter suggests a degree of resilience. The services sector, a major component of the UK economy, showed particular strength, alongside a healthy contribution from construction. Conversely, the production sector experienced a slight contraction.

In contrast to the broader economic picture, the housing market is showing signs of cooling. Zoopla reported a 9% year-on-year drop in agreed sales in September. This decline occurred even as the number of homes on the market increased by 5%, indicating a potential shift in market dynamics, particularly in London and southern England. Annual house price growth has decelerated to 0.8%, its slowest pace since July 2024, with the average UK home price now standing at £273,000.

A significant development impacting households is the forecast for energy bills. Cornwall Insight predicts a 16% jump in the energy price cap from January 2027, adding approximately £276 to the typical annual dual-fuel bill. This increase, driven by soaring gas market prices, will push the cap to its highest level in four years and further strain household finances already contending with inflation.

Impact Analysis

The upward revision to Q2 GDP growth provides a much-needed boost to the government's economic narrative, positioning the UK as the fastest-growing G7 economy in the first half of 2026. Analysts suggest this could bolster the Prime Minister's standing and potentially reduce pressure for early elections. However, the optimism is tempered by warnings of a potential slowdown in the latter half of the year. Ashley Webb, senior UK economist at Capital Economics, notes that while the economy has shown resilience to higher energy prices, this may fade in Q4 as inflation erodes household real incomes. Similarly, Thomas Pugh of RSM UK anticipates a tougher winter due to potential interest rate hikes, rising inflation, and a tax-raising budget, forecasting a drag on growth.

“The upward revisions to Q2 GDP growth means the economy was even stronger in the first half of the year than we previously expected... However, the next six months looks tougher with potential interest rate rises, a sharp increase in inflation and another tax raising budget all to come. That will drag heavily on growth over the winter.”

The decision by Greggs to cut 740 jobs, despite reporting a 7.7% increase in third-quarter sales, highlights the complex pressures facing businesses. While sales have picked up due to factors like improved weather and menu innovation, the company is proactively addressing cost inflation and future capacity requirements. The proposed restructuring, which involves closing production sites, is expected to cost £60 million but yield annual savings of £20 million. This move underscores a strategic focus on efficiency and long-term competitiveness, even amidst positive sales momentum.

Broader Context

The UK's economic performance places it at the forefront of G7 growth for the first half of 2026, outpacing other major developed economies. This relative strength is occurring within a global context of persistent inflation, geopolitical instability, and the ongoing transition towards digital economies. The reported increase in business investment, particularly in areas like data centres, suggests that the UK may be benefiting from the global wave of AI-driven investment, mirroring trends seen in the United States. This investment is crucial for future productivity and competitiveness.

Simultaneously, households are demonstrating increased caution, with the saving ratio rising. This could reflect a response to economic uncertainty and the rising cost of living. The slowdown in the housing market, coupled with the anticipated surge in energy costs, indicates that consumer spending power may face headwinds in the coming months. The government's fiscal policy, including the upcoming budget, will be critical in navigating these challenges and supporting economic stability.

Future Outlook

The economic outlook for the UK remains mixed. While the Q2 GDP revision provides a positive short-term signal and strengthens the UK's position among G7 nations, the potential for a slowdown in late 2026 and into 2027 is a significant concern. Factors such as persistent inflation, the lagged impact of higher interest rates, and potential further fiscal tightening could dampen consumer and business confidence. The energy price cap increase from January 2027 poses a direct threat to household budgets, potentially leading to reduced discretionary spending.

For businesses like Greggs, the focus will likely remain on balancing growth initiatives with cost management. The proposed job cuts, while difficult, are framed as a necessary step for long-term efficiency. The continued investment in business infrastructure, particularly related to AI, could provide a crucial engine for future growth and productivity, but its full impact may take time to materialise. The government's upcoming budget will be a key determinant of the near-term economic trajectory, with decisions on taxation and spending likely to shape the environment for both consumers and businesses.

Conclusion

The latest economic data reveals a UK economy that is performing slightly better than previously estimated in the second quarter of 2026, driven by strengths in services and construction, and a notable rise in business investment. This upward revision bolsters the UK's standing as the fastest-growing G7 economy for the first half of the year. However, this positive news is juxtaposed with significant challenges. The housing market is softening, household savings are rising perhaps out of caution, and energy bills are forecast to climb sharply. Furthermore, the strategic decision by Greggs to cut jobs, despite sales growth, signals ongoing cost pressures and a drive for efficiency. Analysts caution that the resilience shown in Q2 may not extend throughout the remainder of the year, with inflation and interest rates posing risks to future growth. The coming months will be critical in determining whether the UK can sustain its growth momentum amidst these converging economic pressures.