The Iran war risks bringing the G7's fastest-growing economy to a halt

The U.K. economy is showing further signs of a long-awaited rebound, but the picture is complicated by the fallout from the Iran war and high energy prices.

Brits have spent more than expected in recent months amid hot weather, a strong performance for England in the FIFA World Cup and an uptick in business confidence.

Official data published Thursday showed the U.K. economy grew by 0.4% in the second quarter, following 0.6% expansion in the first quarter. Business investment increased by 1.7% in the same period, defying the forecast in a Reuters poll of economists for a 0.5% decline.

The figures keep the country on track to record the strongest growth of any G7 nation for a second straight quarter, Sanjay Raja, Deutsche Bank's chief U.K. economist, said Thursday. Raja said the latest figures brought the annualized growth rate across the first half of the year to a "scorching" 2%.

"Some slowdown remains likely," Raja added, particularly as higher prices at the pump squeeze household incomes. "But for the first time in a while, we now see modest upside risks brewing."

However, the economic outlook facing new U.K. Prime Minister Andy Burnham is not all rosy.

In April, the International Monetary Fund warned that the U.S. and Israel's war with Iran — which shows little sign of concluding — would hit the U.K.'s growth prospects harder than any other rich country.

The U.K. is highly exposed to higher energy prices due to its oil and gas imports, and has also suffered a sharper spike in goods inflation than most of its peers in recent years.