Britain narrowly avoids stagnation with stronger-than-expected 0.3% GDP growth in Q2

14 August 2025

Britain's Chancellor of the Exchequer Rachel Reeves answers journalists’ questions at a Brompton flagship store in Beijing on January 11, 2025. Jade GAO/Pool via REUTERS/ File Photo

When the Office for National Statistics revealed that the UK economy expanded by 0.3 percent between April and June, it came as something of a surprise. After a robust 0.7 percent jump in the first quarter, many had expected growth to slow sharply to perhaps just 0.1 percent. Instead, the figure proved more resilient, offering a small but meaningful reprieve to Chancellor Rachel Reeves as she navigates the pressure of balancing the books in challenging economic times.

The data shows that growth dipped initially in April, with GDP contracting by 0.1 percent. May offered no immediate rebound, but June delivered a strong 0.4 percent bounce. Progress was broad-based, with improvement spanning services, industrial production and construction.

Despite headwinds steep tariffs from the United States and a cooling labor market this performance reinforced the UK’s position as one of the strongest-growing economies in the G7 for Q2. The rebound suggested that a combination of public spending and companies preemptively building up inventory helped carry domestic economic activity.

Still, beneath the topline figures, some indicators remained concerning. Business investment declined by 4 percent from the previous quarter, and household spending continued to show weakness. Economists like Thomas Pugh of RSM UK cautioned that consumer reticence, alongside global demand softening and rising tax burdens, would likely keep overall growth modest for the remainder of the year.

Chancellor Reeves acknowledged the better-than-expected numbers while emphasizing that much more remains to be done. Recent data, including the GDP surprise, increased pressure on her plans for an Autumn Budget.

With high borrowing costs and a subdued growth environment, most economists now recommend that she brace for measures that could include tens of billions in additional tax. Business groups like the Royal Institution of Chartered Surveyors and the Confederation of British Industry warned that tax increases risk dampening growth further, potentially tilting the economy toward stagnation rather than stability.

The pound registered a gentle rise on the news. Sterling gained somewhat against the U.S. dollar pushing up to a three-week high while also strengthening modestly against the euro. Although investors noted that growth data would have more influence on fiscal policy than monetary moves, the Bank of England is likely to keep interest rates steady in the near term as inflation pressures and wage dynamics remain in focus.

Yet, the economy’s productivity remains a glaring weak spot. Output per hour worked dropped 0.8 percent year-on-year in Q2, representing the steepest decline since late 2024 and underlining that growth is being driven by input rather than efficiency gains.

Looking broader, analysts at the International Monetary Fund forecast UK GDP growth of 1.2 percent in 2025, with a slight uptick to 1.4 percent in 2026 figures modest but consistent with slower global expansion. For Reeves, the marginal Q2 resilience grants temporary breathing room, but the true test lies ahead in turning that patchy growth into sustainable momentum, anchored by infrastructure investment, construction stimulus, and wage growth.

The UK’s economic picture remains one of fragile resilience. The Q2 surprise offers a welcome pause, but productivity stagnation, fiscal limits, and household pressures signal that slow and steady recovery, rather than a growth surge, is the most realistic near-term outlook.