Following the release of official data showing the UK economy expanded by 0.6% in the first quarter of 2026, with a solid 0.3% rise recorded in March, analysts at KPMG have offered a measured assessment of the outlook. While the headline figures indicate resilience in the early part of the year, Vice Chair and Chief Economist Yael Selfin warns that emerging pressures could significantly temper progress in the months ahead, particularly as the effects of the conflict in Iran begin to materialize.
Selfin points to renewed strains on ordinary families driven by climbing energy bills and higher petrol prices at the pumps. Grocery prices are also set to increase, fueled by ongoing disruptions in global supplies of fertilisers and other vital farming inputs.
Because energy and food together make up a large slice of everyday household budgets, these cost increases are expected to squeeze disposable income.
added that the result could be weaker consumer spending, which in turn risks holding back broader economic activity over the coming months.
Businesses face their own set of challenges. Selfin notes that growing unease in financial markets has lifted borrowing costs, adding to the difficulties already confronting companies amid persistently high operating expenses.
In response, many firms may decide to cut back or defer planned investments. Such moves would further slow the pace of expansion, compounding the drag on overall growth.
Despite the encouraging first-quarter performance, Selfin expects the full impact of the Iran conflict to become evident during the second quarter.
KPMG added that the combination of higher costs across the board and softening demand is likely to lead to a noticeable slowdown in GDP growth.
“We expect growth to slow, as higher costs and softer demand continue to weigh on activity,” she observes in her analysis.
The comments arrive at a pivotal moment for the UK economy.
Official statistics from the Office for National Statistics confirmed that the January-to-March period delivered stronger results than many forecasters had anticipated, building on a revised 0.2% increase in the final quarter of 2025. Services, production, and construction all contributed positively.
Yet the KPMG perspective underscores the fragility of this recovery in the face of external shocks.
Geopolitical developments, particularly the escalation involving Iran that began in late February, are injecting fresh uncertainty into energy markets and supply chains.
Higher fuel and commodity prices are feeding through to both consumers and producers, creating a dual squeeze that could prove difficult to offset in the short term.
Selfin’s analysis suggests that without swift adaptation—whether through targeted policy support or business resilience measures—the second quarter may see momentum stall.
For households, the prospect of sustained cost-of-living pressures raises concerns about confidence and spending habits. Retailers and service providers may feel the pinch as budgets tighten.
Meanwhile, businesses already navigating elevated costs could become more cautious, prioritising cash preservation over expansion.
This cautious stance risks creating a feedback loop that delays investment in infrastructure, technology, and workforce development.
KPMG’s assessment aligns with a broader pattern of cautious optimism among UK economists. While the first-quarter data offers some reassurance that the economy has avoided an immediate downturn, the road ahead appears more testing.
Selfin’s remarks serve as a reminder that headline growth figures alone do not tell the full story. Sustained expansion will depend on how effectively the country manages the spillover from international conflicts and domestic price rises.
As the second quarter unfolds, attention will turn to upcoming inflation readings, Bank of England decisions, and any government responses aimed at shielding vulnerable sectors. For now, the takeway from KPMG is evident. That being, the UK’s economic resilience is being tested once more, and vigilance will be essential to steer through the challenges.
