UK economy beats growth forecasts in Q2
The UK economy expanded by 0.3% in the second quarter of 2025, beating market forecasts for 0.1% growth, latest figures published by the Office for National Statistics (ONS) on Thursday showed.
The data, which covers the three months ending in June, indicates a slowdown from the 0.7% growth recorded in the first quarter. Monthly GDP rose by 0.4% in June, following declines of 0.1% in both May and April.
GDP grew 0.3% in Quarter 2 (April to June) 2025.
— Office for National Statistics (ONS) (@ONS) August 14, 2025
Services (+0.4%) and construction (+1.2%) both grew but production (-0.3%) fell.
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“Growth slowed in the second quarter after a strong start to the year,” said Liz McKeown, ONS director of economic statistics, commenting on the latest GDP figures.
“The economy was weak across April and May, with some activity having been brought forward to February and March ahead of Stamp Duty and tariff changes, but then recovered strongly in June.”
Growth in the services sector was a key factor in the quarterly increase in GDP, with services output up 0.3% in June. This followed a 0.1% rise in May and a revised 0.2% fall in April.
Production output also saw an increase, rising 0.7% in June after a 1.3% drop in May and no change in April. Construction output grew by 0.3% in June, recovering from a 0.5% decline in May and building on a 0.9% increase in April.
Over the three months to June, the services sector expanded by 0.4% and construction output increased by 1.2%. These gains were partially offset by a 0.3% contraction in production during the same period.
“GDP growth in June was a fair bit stronger than the market had been expecting, put that together with some significant upward revisions to April’s numbers and overall growth for the quarter wasn’t bad at all,” said Nicholas Hyett, investment manager at Wealth Club.
“After the tariff induced volatility earlier in the year, the production sector has bounced back, helped by increased defence spending in certain sectors, while the motor industry enjoyed a month of strong sales amid growing demand for electric vehicles. The government can probably take some credit – with the UK-US trade deal coming into force at the end of June providing some much-needed certainty to UK exporters.
“However, it does raise some interesting questions for the Bank of England – where interest rate decisions are on a knife edge. An annualised GDP growth rate of 1.26% is hardly spectacular, but might be better than risking an inflationary overshoot – especially with 4% inflation expected in September anyway. Better leave the economy sputtering into life than risk turbo charging price rises with further interest rate cuts.”
For Nicholas Mendes, mortgage technical manager at John Charcol, however, the slowdown in Q2 GDP growth, coupled with further signs of a cooling jobs market, points to a UK economy clearly losing momentum after the strong 0.7% rebound in Q1.
“The Bank of England’s recent decision to cut interest rates to 4%, alongside a softer growth profile, increases the likelihood of further – albeit gradual – reductions later this year,” he added.
“However, the bank’s caution and the persistence of wage growth around 5% mean mortgage rates are unlikely to fall sharply in the near term. It is also important to stress that any reduction in bank rate has already been anticipated by markets, and lender pricing reflects much of this expectation.
“That said, lenders may become marginally more competitive. For those with low loan-to-value (LTV) ratios, we are likely to see only small, incremental reductions given where swap rates currently stand and the slim margin between these and current best buys.”
The more encouraging news, Mendes pointed out, may be for borrowers higher up the LTV scale, where greater pricing gaps allow lenders more room to adjust and position themselves competitively.
“As competition returns over the final two quarters and lenders look to end the year strongly, higher LTV ranges could see more meaningful rate cuts, benefiting those trying to get onto the property ladder or remortgage with limited equity,” he said.
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