UK Political Uncertainty Overshadows Strong Start to the Year

The UK economy grew 0.6% in Q1 2026, but momentum is expected to stall due to geopolitical tensions and internal political instability. Rising inflation and expected BoE rate hikes present further headwinds despite the initial resilience.

Key Takeaways

• 1.The UK economy saw a solid Q1 GDP growth of 0.6% Q/Q, but momentum is expected to fade due to the Iran conflict.
• 2.Domestic political instability and a potential leadership transition for PM Starmer are creating a higher political risk premium for UK assets.
• 3.Despite slowing growth, the BoE is projected to hike rates at least twice this year as inflation is set to rise above 4% in H2.

Table of Contents

• UK political uncertainty overshadows another strong start to the year
• UK growth set to fizzle out after a strong start to the year
• Yet another fast start to the year for the UK economy
• UK business sentiment was relatively resilient in April
• Political uncertainty adds to the downside risks
• The UK leadership outlook is highly uncertain
• UK borrowing costs have diverged from G7 peers
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