Economy showing resilience but government must act decisively to regain momentum

The UK economy has proved to be more resilient than expected in the last three months, but government action is needed to encourage businesses to invest and guide the economy towards stronger growth.

That’s the view of Emeritus Professor Joe Nellis, economic advisor at Lancashire-based accountancy and advisory firm MHA, speaking following the release of the latest UK GDP figures.

The latest data shows the UK economy grew by 0.4 per cent in the second quarter, a slowdown from the 0.6 per cent recorded in the first quarter but a reflection of an economy that has remained resilient in the face of global headwinds - namely trade conflict and geopolitical volatility - and a period of political turbulence at home.

But forecasts suggest the economy will continue to lose momentum as we enter the second half of 2026, and the new Chancellor faces a number of challenges as we head towards the Budget in October.

Joe said: “Consumer spending remains constrained, businesses continue to adjust to higher costs and investment spending is vulnerable to uncertainty over taxation, regulation and the ongoing tensions in the Middle East.

“The government must provide greater clarity and certainty over its tax and spending plans, supporting and encouraging business investment while addressing the UK's persistent productivity problem.

“In recent years, constant speculation in the run-up to the Budget has fuelled uncertainty and encouraged firms to delay major decisions. Prime Minister Burnham and his government must learn from this, acting quickly and decisively to set out a clear economic direction and give businesses the confidence they need to invest and grow.

"A reaffirmation of the government’s commitment to the fiscal rules followed by former Chancellor Reeves would send a calming message to financial markets and businesses that spending measures will not rise beyond the Treasury’s means. With public sector finances already under severe strain, this means there is very little room for a large fiscal stimulus, making policies that strengthen private-sector confidence even more important.

“Concerns remain that potential tax raids could be used to fund some of the many initiatives already announced by the Prime Minister. Among the tax measures being floated, wealth taxes risk driving wealth and job creators out of the country, while equalising capital gains tax with income tax would discourage retail investment at a time when the London Stock Exchange is in desperate need of support.

“Tax rises may be unavoidable. If they are, the government must minimise uncertainty and allow businesses to plan for the future. This is something that has been sorely lacking over the last decade.”