The UK economy grew by a stronger-than-expected 0.6% in Q1, helped by a resilient services sector. Timing also played a role: the conflict in Iran, which began in late February, had not yet fed through into the data. This marks a sharp improvement on the three preceding quarters, each of which delivered growth of just 0.1 to 0.2%.
However, the strong quarter did little to lift the annual growth rate, which current sits at 1.2%. The stronger quarterly growth did lift forecasts for the year though, consensus forecasts have been revised up to 1.0% growth for 2026, from 0.6% a month ago – a modest upgrade.
Q1 does likely represent the high point for the year. Higher energy costs will weigh on the growth outlook for the remaining quarters.
The strength of the relationship between economic growth and house price performance has been well-evidenced over decades.The implication for housing is overall low single-digit price growth. As ever, there will be scope for regional and localised variation, driven by where buyers have more room to absorb higher borrowing costs.
One potential upside to the economic outlook is AI-driven productivity gains. The timing of any such gains remains difficult to predict, for now consensus forecasts point to a slowdown but this is a genuine swing factor worth watching. Source: Dataloft by PriceHubble, Nationwide, ONS, HM Treasury Consensus Forecasts.