26 June 2026
UK economy: GDP down, employment up and wages and inflation flat
For the first time in 2026, April saw a small contraction in the economy, with GDP falling by 0.1%. This was primarily driven by declining consumer services, falling by 0.5%, while production experienced flat levels of activity.
Despite this, NIESR predict growth of 0.2% in the second quarter of the year. However, the slowdown could worsen as the effect of higher energy costs feeds through, though they expect interest rates to remain at current levels rather than rise.
Those inflationary pressures weren’t yet affecting inflation, with CPI inflation remaining at 2.8% in May. There was cost pressure in transportation, driven by the fuel and sea fares cost rises, but eight out of 1ten categories saw price drops - importantly including food and non-alcoholic beverages which fell by 2.2% to its lowest level since December 2024.
The ongoing situation in the Middle East, without a clear resolution, means inflationary pressures are likely to last.
NIESR’s Wage Tracker shows a slight fall in unemployment in April to 4.9%, down from the recent peak of 5.2%. This was driven by rises in both those who are employed and those who are economically inactive.
Average earnings growth held steady at 3.4%, meaning positive real income growth, though continuing to decline from the 2025 peak following significant pay awards. Overall wage growth is expected to fall to 2.4% by the end of summer.
Despite this, NIESR predict growth of 0.2% in the second quarter of the year. However, the slowdown could worsen as the effect of higher energy costs feeds through, though they expect interest rates to remain at current levels rather than rise.
Those inflationary pressures weren’t yet affecting inflation, with CPI inflation remaining at 2.8% in May. There was cost pressure in transportation, driven by the fuel and sea fares cost rises, but eight out of 1ten categories saw price drops - importantly including food and non-alcoholic beverages which fell by 2.2% to its lowest level since December 2024.
The ongoing situation in the Middle East, without a clear resolution, means inflationary pressures are likely to last.
NIESR’s Wage Tracker shows a slight fall in unemployment in April to 4.9%, down from the recent peak of 5.2%. This was driven by rises in both those who are employed and those who are economically inactive.
Average earnings growth held steady at 3.4%, meaning positive real income growth, though continuing to decline from the 2025 peak following significant pay awards. Overall wage growth is expected to fall to 2.4% by the end of summer.
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