Q2 25 UK GDP: Losing Momentum

The economy grew by just 0.3% QoQ in the second quarter, somewhat above the BoE's expectation for 0.1% growth, albeit still marking a return to the at best anaemic pace of growth seen in the final six months of last year.

That said, much of this softness had been widely expected. A huge degree of activity had been pulled forward into the first quarter, not least as a result of a surge in exports ahead of the US imposing tariffs in April, but also amid increased activity in the property market ahead of the stamp duty changes. Subsequently, in Q2, the majority of these effects unwound, thus acting as a drag on growth metrics, while also making the data very noisy indeed.

Nevertheless, the economy has continued to lose momentum into the third quarter, where leading indicators such as the July PMI surveys point to the pace of growth having waned further as summer got underway.

Furthermore, risks to the outlook continue to tilt clearly to the downside, as the labour market continues to weaken at a rate of knots, and the prospect of further fiscal tightening (i.e., significant tax hikes) looms large in the autumn.

Despite that, today's data is highly unlikely to have a material impact on the near-term outlook for the Bank of England, after a bitterly divided MPC voted 5-4 in favour of a 25bp Bank Rate cut last week. Although the guidance around 'gradual and careful' easing was retained, policymakers' focus remains squarely on the inflation outlook for the time being, with concern over the risk of persistent price pressures becoming embedded within the economy preventing a more rapid pace of rate reductions for the time being. My base case remains that the MPC cut just once more this year, in November.