UK economy grew faster than thought in first six months of Labour government – business live | Business

Although the upward revisions to UK GDP this morning are welcome, they probably won’t save chancellor Reeves from a productivity downgrade from the UK’s fiscal watchdog, says Paul Dales, chief UK economist at Capital Economics.

The small upward revisions to real GDP in recent years partly helps to explain the strength of inflation and means that productivity growth wasn’t quite as weak as previously thought. The OBR will take these revisions into account ahead of the Budget, but they are very unlikely to prevent the downgrade to the OBR’s productivity growth forecasts that will contribute to the Chancellor having to raise some money, most likely via higher taxes.

The quarterly rate of GDP growth in Q2 2025 was left unrevised at 0.3% q/q, although the annual growth rate was revised up from 1.2% to 1.4%. And in Q2 itself, the shape of growth was a little more encouraging. Most striking was that the change in business investment was revised from -4.0% q/q to -1.1% q/q. This was offset by smaller contributions to GDP growth from net trade, inventories and the alignment adjustment.

Matt Swannell, chief economic advisor to the EY ITEM Club, points out that growth has been “very sluggish” since Covid-19:

“GDP growth was confirmed to have slowed to 0.3% in Q2, down from 0.7% at the start of the year. Some of the strength at the start of the year was the result of ongoing issues with residual seasonality, but below the surface, the data paints a weaker picture, with Q2 growth heavily reliant on government spending. Consumption was little more than flat on the quarter, while business investment fell 1.1% as some temporary strength from Q1 unwound.

Today’s release incorporated additional survey and administrative data, and methodological improvements that caused revisions as far back as 1997. The new data leaves the level of GDP a little higher, but it doesn’t change the broader picture that the UK economy has been very sluggish since the pandemic.

Richard Flax, chief investment officer at Moneyfarm, suggests the economy is “navigating headwinds” better than thought:

“The final estimate of UK GDP for Q2 confirmed growth of 0.3% quarter-on-quarter, in line with expectations, but showed a stronger-than-anticipated 1.4% increase year-on-year. This marks an upward revision from the previous estimate of 1.2% YoY, suggesting that the economy performed better over the past year than initially thought.

The firmer annual growth points to a more resilient backdrop, supported by sustained strength in services and consumer spending, even as higher interest rates continued to weigh on activity. This resilience suggests that the UK economy is navigating headwinds more effectively than feared.

Looking ahead, momentum in the second half of the year remains uncertain. Weak global demand and persistent cost pressures may continue to act as a drag, even as households and businesses begin to benefit from disinflation and a stabilising rate environment. In terms of fiscal policy, a slightly better performance on economic growth may not do much to help the Chancellor as she tries to balance the books ahead of the November budget. We’re still likely to see a range of tax increases in the budget announcement.”