UK GDP annual growth rate at 1.2% in Q2

The British economy grew 1.2% year-on-year in Q2 2025, easing slightly from 1.3% in the first quarter but still surpassing market expectations of 1%, according to preliminary estimates from the Office for National Statistics. The resilience in growth was driven by solid domestic demand and a rebound in trade, despite signs of weakening investment momentum.

Household spending increased 1.1% from 0.9% in Q1, supported by real wage gains and moderating inflation, while government expenditure grew 1.7% compared with 1.5% previously, reflecting higher spending on public services and infrastructure projects.

External trade provided a boost as exports rebounded 3% after contracting 0.5% in Q1, helped by stronger demand from non-EU markets. Meanwhile, import growth slowed sharply to 3.3% from 7.5%, narrowing the trade gap and adding positively to net trade’s contribution to GDP.

However, investment indicators pointed to growing caution in the private sector. Growth in gross fixed capital formation decelerated to 1.3% from 3.5%, and business investment almost stalled, rising only 0.1% after a strong 6.1% gain in Q1. This slowdown likely reflects uncertainty over global trade conditions, domestic policy direction, and the impact of recent Bank of England interest rate decisions on borrowing costs.

From the production perspective, the services sector — which accounts for the bulk of the UK economy — expanded 1.2%, just below the 1.4% pace in Q1, with gains concentrated in professional services, information & communications, and hospitality. Industrial production posted a modest 0.3% increase after stagnating in the previous quarter, driven mainly by manufacturing output linked to export-oriented industries. Construction activity remained subdued, with early data suggesting that weather-related disruptions and soft housing market conditions weighed on output.

The better-than-expected GDP performance may give the Bank of England more leeway to hold interest rates steady in the near term, especially after its narrow decision to cut by 25 basis points earlier this month. However, the sharp slowdown in business investment is a warning sign for future growth momentum. Markets will be watching upcoming inflation, labor market, and retail sales data for confirmation on whether Q2’s resilience can carry into the second half of 2025.