UK Growth Slows but Beats Expectations in Tough Global Climate

The UK economy grew 0.3% in the second quarter of 2025, slowing from 0.7% in Q1 but beating forecasts of 0.1%. Services led the expansion, with construction output rising 1.2% thanks to hot, dry weather. 

Gains in computer programming, vehicle rentals, and healthcare offset early weakness in retail, which rebounded toward quarter-end. April’s GDP contraction was also revised to -0.1% from -0.3%, highlighting more resilience than previously thought.

While growth has moderated, the UK remains a strong G7 performer, having led in Q1 and potentially topping the bloc for the first half of the year. This momentum may encourage the Bank of England to delay further rate cuts, especially after revising its inflation forecast to a 4% peak before easing to the 2% target in 2027. Interest rates stand at 4% after five cuts in the past year.

The National Institute of Economic and Social Research estimates a £41.2bn shortfall that may necessitate tax increases to meet borrowing rules.

What Does This Mean for Me?

Headwinds are building. Business investment fell 4% following a 3.9% rise in Q1, and household spending dipped. Economists warn Q3 could see slower growth due to global weakness, April’s tax hikes, and uncertainty over further fiscal measures in the Autumn Budget. 

Still, consumer confidence has been buoyed by lower borrowing costs and early summer weather, boosting hospitality and discretionary spending. Goldman Sachs has raised its full-year growth forecast from 1.2% to 1.4%.