Services and Construction Surge in Q2 Surprises Everyone

2025’s UK Economy: A Slow but Smooth Ride

It turns out that the UK’s economic engine has been running on a gentle but consistent pace this year. June’s GDP grew by 0.4 %—thanks to a surprisingly strong boost from services and construction. That helped smooth out the dip in April and May, pushing the second‑quarter growth to 0.3 %.

What’s Fueling the Numbers?

Government spending was the main driver in Q2.
Household consumption just kept rolling along—no big surprises there.
Gross fixed capital formation eased in the second quarter compared to the first.

All in all, the trend remains that of low yet steady growth for the UK.

Looking Ahead: The Forecast

We’re projecting a 0.5 % rise in the third quarter, thanks to supportive fiscal policy and a cooling labour market. Overall for the year, we expect GDP to increase by 1.3 %, largely driven by government spending and a bounce in business investment from Q1. The outlook is skewed to the downside given several risk factors.

Key Risks That Could Stall Growth

Geopolitical tensions and tariff uncertainties threaten global demand.
The biggest worry? Public finances at the brink. Speculation (and potential reality) of fiscal tightening in the Autumn Budget could crowd out economic activity.
Debt‑interest forecasts might worsen, putting additional pressure on an already frail fiscal room.

Labour Market Snapshot

The labour market is cooling but not kicking the brakes hard. Unemployment transitions are high, largely because of people drifting in from inactivity rather than outright job losses. Payrolled employment dipped only 0.03 % in July, poised for a possible upside revision.

Expert Insight

Fergus Jimenez‑England, Associate Economist at NIESR, sums it up: “GDP grew a touch better than expected—0.4 % in June thanks to services and construction. The second quarter saw 0.3 % growth. Even with this win, we predict a subdued third quarter because fiscal uncertainty and trade tensions still loom large.”

“Our recent UK Economic Outlook reminds us: the Chancellor needs to build a solid fiscal buffer in the Autumn Budget to stave off uncertainty for next year,” Fergus adds.