UK economy beats forecasts in Q2 despite tax hikes and US tariffs

United Kingdom’s economy grew faster than expected in the second quarter of 2025, but momentum slowed from the strong start to the year as higher business taxes and new US tariffs began to bite, official data showed on Thursday.

Gross domestic product rose 0.3 percent between April and June, according to the Office for National Statistics (ONS), outpacing analysts’ expectations of 0.1 percent growth. This followed a 0.7 percent expansion in the first quarter.

Finance Minister Rachel Reeves hailed the figures as evidence of resilience. “Today’s economic figures are positive, with a strong start to the year and continued growth in the second quarter. But there is more to do to deliver an economy that works for working people,” she said.

The ONS said growth in construction and services, particularly computer programming, healthcare, and vehicle leasing,  helped offset a fall in production output.

However, the jobs market showed signs of strain, with unemployment climbing to a four-year high of 4.7 percent in the second quarter. The rise was linked in part to the Labour government’s April increase in business taxes, which coincided with the US imposition of a 10 percent baseline tariff on most UK exports under President Donald Trump.

The Bank of England, citing risks from tariffs and global weakness, cut its key interest rate by 0.25 percentage points to 4 percent last week to support growth.

“The weak global economy will remain a drag on UK GDP growth for a while yet,” said Ruth Gregory, deputy chief UK economist at Capital Economics. “The full impact of April’s tax rises on business investment has yet to be felt, and speculation over further tax hikes in the autumn budget will likely weigh on consumer confidence.”