UK's Economy Expands Amidst Tariff Pressures, Surpassing Growth Rates of G7 Counterparts
UK Economy: Mixed Performance in Q2 2025
The UK economy expanded by 0.3% in the second quarter of 2025, according to recent data. Despite this growth, the country trails behind the US in quarterly growth, with the US recording a 0.7% increase during the same period. However, on a half-year basis, the UK leads the G7, with an annualised rate of 2.2%, the fastest in the group [1][3][4].
The services sector was a key driver of the UK's growth, rising by 0.4%. The construction sector also saw a climb of 1.2%, while manufacturing posted a slight 0.3% gain. However, the production sector slipped by 0.3% [1][3][4].
Export volumes rose by 1.6% year-on-year, primarily due to stronger services exports. Despite a 0.2% drop in goods exports, the growth in services exports helped offset this decline. Import volumes increased 1.4%, driven by a rise in goods imports, while services imports slightly decreased [1][3].
The economic activity in the UK was front-loaded into February and March due to pre-emptive economic pull-forward, which helped inflate Q1 figures and weighed on output in the early part of Q2. This trend was also observed in the pharmaceuticals sector, which saw a 7.0% leap in the second quarter [1][3].
Machinery and equipment in the UK also grew by 3.0% in the second quarter. The monthly GDP for services, production, and construction showed a 0.4% uptick in June, helping to counterbalance weak activity in April and May [1][3].
The UK's Q2 2025 growth rate matched or exceeded that of other G7 nations, with France also growing 0.3% and Canada remaining flat. Germany and Italy contracted by 0.1% each [1][4].
Despite the mixed performance, the UK's economy growth has been enough to reassure policymakers and investors. However, the economic outlook remains subdued due to uncertain global economic conditions and domestic challenges such as a weakening labor market and higher interest rates [2].
Summary:
| Quarter | UK GDP Growth Rate | Key Drivers & Notes | |---------|--------------------|-----------------------------------------------| | Q1 2025 | 0.7% | Strong business investment, services, manufacturing | | Q2 2025 | 0.3% | Growth slowed; driven by services, construction; production fell 0.3% | | H1 2025 | Mixed trajectory | Growth started strong then slowed due to higher costs, trade turbulence |
Sources: [1] Office for National Statistics (ONS) [2] EY's UK Economic Forecast [3] Financial Times [4] BBC News [5] Reuters
- The growth in the services sector, which was a key driver of the UK's Q2 2025 economy, suggests a positive trajectory for some businesses within this sector.
- A closer look at the UK's Q2 2025 economic growth reveals that the expansion in the finance sector, as indicated by the increase in machinery and equipment, played a significant role in the overall growth.
