Mortgage market feels the strain as GDP growth masks softer underlying conditions
The UK economy grew by 0.4% in the second quarter of 2026, according to figures published by the Office for National Statistics (ONS), slowing from the 0.6% recorded in the first three months of the year but remaining in line with City forecasts.
Monthly GDP rose 0.3% in June, exceeding analyst expectations of a 0.1% decline. May's figure was revised down to show no growth, from an initial estimate of 0.1%.
GDP grew 0.4% in Quarter 2 (Apr to June) 2026.
— Office for National Statistics (ONS) (@ONS) August 13, 2026
Services (+0.5%) and construction (+0.3%) both grew while production (0.0%) was flat.
Read more ➡️ https://t.co/2ynTgr0vgO pic.twitter.com/JTLJmjP9vP
"Growth slowed in the second quarter of the year, following a strong start to 2026, but remained relatively robust," said Liz McKeown, ONS director of economic statistics. "Within services, computer programming and advertising continued to perform strongly, as they have done throughout the year, while wholesale was a notable area of weakness."
At the monthly level, the 0.4% rise in services in June was partially offset by falls of 0.2% in production and 0.1% in construction.
Sustained high energy prices, linked to the ongoing Middle East conflict and disruption to the Strait of Hormuz, have been identified as a drag on growth. Treasury officials are reported to have warned ministers that annual GDP growth could slow to 0.3% should the strait remain blocked. The Bank of England has indicated it would consider raising interest rates under the same conditions, while economists at EY have warned the UK could tip into recession if oil and gas flows through the Gulf region remain disrupted.
Energy costs and rate pressures clouding the outlook despite growth
"After a relatively strong first quarter, it was widely expected that GDP growth would slow between April and June," said Richard Pike (pictured right), chief sales and marketing at mortgage servicing provider Phoebus Software.
"The economy's had a genuine external shock this year with the continuing conflict in the Middle East. Energy prices are still high and volatile, and the Bank of England expects inflation to rise again later this year.
"That combination of higher costs and higher rates is squeezing business investment and household confidence at the same time, and a small increase in GDP doesn't undo that backdrop. We're already seeing a similar pattern in housing – June's net mortgage borrowing more than doubled, and property transactions edged up after two months of decline – but in both cases the underlying momentum is far softer than the headline number suggests.
"For lenders, steady growth and market conditions means managing a genuinely heavy workload – a wave of fixed-rate maturities, borrowers facing real payment shock as they roll onto higher rates, and completions still working through the system on a time lag. However, the rise is clearly good news for the economy and should continue to build market confidence overall."
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
