UK growth slows in Q2

GDP data shows a modest rise as policy choices loom ahead of the Autumn Budget

UK growth slows to 0.3 percent in the second quarter

GDP expanded 0.3 percent in the April to June quarter, beating economists forecast but marking a sharp slowdown from 0.7 percent in the first three months of the year. Growth was driven by services, construction and manufacturing, with June up 0.4 percent after declines in April and May. The trade picture worsened as the trade deficit widened to £9.2 billion, with exports to the US falling to the lowest level since early 2022.

Public sector spending rose 1.2 percent while business investment dropped 4 percent, reversing a 3.9 percent rise in the prior quarter. Household consumption edged up 0.1 percent. The data highlight a fragile economy and add pressure on the Bank of England to decide when to cut more rates. The chancellor faces calls for tax rises in the autumn budget to plug a large fiscal gap, with some estimates exceeding 20 billion pounds. Reeves says the figures are positive but there is more to do to deliver for working people. The opposition warns that higher taxes could slow hiring and dent confidence as inflation and unemployment trends remain uneven.

The numbers point to a recovery that relies on public spending and domestic demand rather than broad private investment. With business investment down and an uncertain global backdrop, policymakers face a thin margin for maneuver. Fiscal space is shrinking as higher rates and debt service limit options, making the autumn budget a test of whether taxes or tighter public finances can be balanced against the need to sustain growth. The Bank of England will weigh the data against inflation dynamics and jobs data, keeping the path to further rate cuts uncertain. In this climate, political signals from both Labour and the opposition will affect business confidence just as the economy tries to gain momentum.

Highlights

Policy makers will need data on inflation and jobs as much as on growth to steer the recovery.