The UK economy has demonstrated resilience in the face of US tariffs and higher business taxes, with the Office for National Statistics (ONS) reporting a 0.3% growth in gross domestic product (GDP) for the second quarter. This surpasses analyst forecasts of 0.1% growth, following a 0.7% increase in the first quarter. Finance Minister Rachel Reeves hailed the figures as “positive,” highlighting a strong start to the year and continued growth in the second quarter.
The growth was driven by the construction and services sectors, which offset a decline in production. According to Liz McKeown, ONS Director of Economic Statistics, services led the growth, with notable increases in computer programming, health, and vehicle leasing. Overall, GDP grew 0.4% in June, rebounding from slight contractions in April and May. This growth will be welcome news for the government, which has struggled to achieve significant economic growth.
Despite the positive growth, the UK economy faces challenges, including a four-year high unemployment rate of 4.7% in the second quarter. This increase is largely attributed to the government’s rise in business taxes from April, coinciding with the introduction of US President Donald Trump’s 10% baseline tariff on most goods. However, a trade agreement between London and Washington in May reduced levies on certain UK-made items, such as vehicles, imported by the United States. This agreement has helped boost output, with June showing growth in all sectors, including manufacturing.
The US tariffs have taken a toll on UK exports, with goods exports to the United States falling by £700 million ($950 million) in June to their lowest level since February 2022. The Bank of England has cited threats to growth from US tariffs as a reason for cutting its key interest rate by a quarter point to 4%. Ruth Gregory, Deputy Chief UK Economist at Capital Economics, notes that the weak global economy will continue to drag on UK GDP growth, and the full impact of April’s tax rises has yet to be felt.
The UK economy’s resilience may influence the Bank of England’s decision on interest rates, with policymakers potentially more cautious about cutting rates in the coming months. As the government navigates the challenges posed by US tariffs and domestic economic pressures, the focus will be on sustaining growth and delivering an economy that works for working people.
