Economic Update: UK and Germany
UK GDP Growth
The UK's economy has shown a year-over-year growth of 0.9% in the latest reading, which is below the previous figure and market expectations of 1.1%. However, the quarterly GDP growth remained stable at 0.6%, aligning with forecasts. The real GDP for Q1 2026 increased by 0.6% quarter-on-quarter, indicating a significant acceleration from the revised 0.1% growth recorded in Q4 2025.
This growth was broad-based, with all three main sectors contributing positively. The services sector was the primary driver, rising by 0.8%, suggesting that domestic activity remained resilient at the start of the year. Despite this positive growth, the annual GDP growth for 2025 was slightly revised down to 1.3% from 1.4%, following a 1.0% growth in 2024.
Real GDP per head also saw a rise of 0.6% in Q1, marking a 0.7% increase compared to the previous year, indicating a modest improvement in economic output per person.
Household Economic Indicators
On a less positive note, real household disposable income per head fell by 0.8% in Q1, reversing part of the 1.2% increase seen in Q4 2025. Additionally, the household saving ratio declined by 0.7 percentage points to 8.9%, primarily due to a weaker contribution from non-pension saving. This suggests that while the economy shows signs of growth, consumers may still face financial pressures.
German Retail Sales
In contrast, Germany's retail sales data surprised analysts by rising 1.1% month-over-month and 1.8% year-over-year, comfortably exceeding expectations. This positive trend in retail sales is complemented by a 0.7% increase in import prices from the previous month, a current account surplus narrowing to €22.1 billion, and business investment growth of 0.9% quarter-over-quarter, which aligns with forecasts.
Conclusion
Overall, the data indicates that the UK economy started 2026 on a stronger footing, primarily driven by the services sector. However, the decline in household income and savings suggests that consumers may continue to experience financial strain despite the positive headline GDP growth. Meanwhile, Germany's retail performance reflects a more robust consumer environment, highlighting differing economic trajectories within the Eurozone.