The British economy has delivered a modest but unexpectedly resilient performance in the second quarter of 2025, offering both glimmers of hope and a fresh set of challenges for policymakers, businesses, and households. According to data released Thursday by the Office for National Statistics (ONS), the United Kingdom’s gross domestic product (GDP) grew by 0.3% between April and June, outpacing the Bank of England’s forecast of just 0.1% and beating the expectations of economists polled by Reuters. This follows a robust 0.7% expansion in the first quarter, marking a clear slowdown but one that still surpassed initial predictions.
The ONS also revised April’s GDP contraction from an earlier estimate of 0.3% down to just 0.1%, painting a slightly brighter picture of the spring’s economic turbulence. The economy stumbled in both April and May, but rebounded in June with a 0.4% month-on-month increase, thanks to a blend of stronger services, a construction sector buoyed by unseasonably dry weather, and a late surge in retail activity.
Much of the growth in the second quarter was driven by the services sector, with computer programming, consultancy, software installation, disaster recovery, vehicle rentals, and health services all contributing. Scientific research and development, engineering, and car sales also posted notable gains in June, while the manufacture of electronics performed well within the broader production category. The construction industry, often at the mercy of the British climate, expanded by 1.2% over the quarter, a result experts attribute in part to the “unexpected sunshine” that lured both workers and consumers out in force.
Retail, which had dragged on growth earlier in the quarter, showed signs of recovery towards the end of June. However, business investment fell sharply—down 4% compared to a 3.9% rise in the first three months of the year—while household spending also dipped, reflecting ongoing caution among consumers amid persistent uncertainty.
Chancellor Rachel Reeves was quick to highlight the positive aspects of the new data. “The figures beat expectations,” she said, while acknowledging, “there is still more to do so people in all parts of the country benefit from growth.” Reeves described the UK economy as having been “stuck for too long,” referencing years of “anaemic growth, poor productivity and living standards going backwards.” She pledged to continue pressing ahead with infrastructure investment, reduced restrictions on construction, and a higher minimum wage, all aimed at delivering “an economy that works for working people.”
Yet not everyone is convinced the government’s approach is working. Conservative shadow chancellor Mel Stride accused Reeves of “economic vandalism,” while Liberal Democrat Treasury spokeswoman Daisy Cooper quipped, “Snails would scoff at the pace that our economy is growing. The Conservative Party led us into this economic quagmire but this Labour government has failed to break from the years of mismanagement.”
Business leaders and economists also voiced concerns. Sharon Graham, general secretary of the Unite trade union, described the chancellor’s fiscal rules—designed to constrain government borrowing—as “shackling the economy.” She warned, “workers can’t wait forever for investment in our public services and industry.” The Confederation of British Industry (CBI) urged Reeves not to make businesses bear the brunt of further tax rises, cautioning that “policy uncertainty in the run-up to the Autumn Budget risks tipping the balance” between resilience and stagnation. The Royal Institution of Chartered Surveyors, meanwhile, pointed to higher taxes as a factor weighing down the housing market.
Indeed, the prospect of further tax increases looms large. Many economists believe Reeves will have to raise taxes in the upcoming Autumn Budget to meet her self-imposed borrowing rules. The National Institute of Economic and Social Research recently estimated that the government could miss its fiscal targets by £41.2 billion without additional revenue, a gap that will be hard to close with subdued growth and high borrowing costs.
The Bank of England has played its part in trying to stimulate the economy, cutting interest rates five times over the past year. The current rate stands at 4%, down from 4.25% after the most recent reduction. The Bank’s Monetary Policy Committee was split on the rate cut, with four members wanting to hold rates, four favoring a cut, and one calling for an even steeper reduction. In the end, a majority voted for a 25-basis-point cut, reflecting what Governor Andrew Bailey called a “finely balanced situation.” Bailey told CNBC, “There’s an upside risk to inflation, and particularly as to whether... this current increase could persist somewhat more than we expect it to. We don’t expect it to actually, but could it?”
Inflation remains a persistent concern. The Bank recently raised its inflation forecast, now expecting the pace of price rises to peak at 4% later this year before gradually receding to the 2% target in 2027. June’s inflation rate was 3.6%, up from 3.4% in May, even as the jobs market showed signs of cooling. The Bank’s statement last week noted that “underlying UK GDP growth has remained subdued, consistent with a continued, gradual loosening in the labour market.”
Internationally, the UK’s performance has been mixed but not without bright spots. The country boasted the fastest GDP growth among G7 nations in the first quarter of 2025, and was joint-second with France in the second quarter. Output in Q2 was up 1.2% compared to the same period last year, and on a per capita basis, GDP was 0.7% higher than a year earlier. Goldman Sachs recently raised its forecast for UK annual growth from 1.2% to 1.4%, citing the economy’s resilience.
However, some of the first quarter’s strength was attributed to firms and homebuyers rushing to act before the introduction of Donald Trump’s US tariffs and changes to UK stamp duty thresholds. These factors, as ING economist James Smith pointed out to BBC, “were always going to be a drag, so the fact that we’ve ended up with 0.3% growth in an environment of global uncertainty isn’t really a bad result.” Still, British goods exports to the US dropped to their lowest level in more than three years in June due to these tariffs, underscoring the challenges ahead.
Looking forward, the outlook remains uncertain. The Bank of England expects 0.3% growth in the third quarter and 1.25% for 2025 as a whole. Yet, as Ruth Gregory of Capital Economics cautioned, “The weak global economy will remain a drag on UK growth for a while yet. The full drag on business investment from April’s tax rises has yet to be felt. And the ongoing speculation about further tax rises in the Autumn Budget will probably keep consumers in a cautious mood.”
For many on the ground, the story is one of cautious optimism. Iain Hoskins, who owns several hospitality venues in Liverpool, told BBC he was “feeling more positive than we have done for the last few years,” crediting better weather and improved consumer confidence. “Interest rates going down has really helped: more money in peoples’ pockets. That is fundamental.”
As summer gives way to autumn, the UK economy finds itself at a crossroads—balancing resilience against the risk of stagnation, and optimism against the hard realities of global headwinds and domestic policy uncertainty. The next few months, and the decisions taken in the Autumn Budget, will be crucial in determining whether this fragile momentum can be sustained.
