After the UK economy grew at a faster rate than expected in the second quarter of 2025, investment managers discuss the impact and the timing of potential interest rate cuts.

Despite a slowdown from the start of the year, growth in UK gross domestic product (GDP) rose 0.3 per cent in the second quarter of 2025, above market expectations of 0.1 per cent, according to latest figures from the Office for National Statistics. The result compares with 0.7 per cent growth in the first quarter.

Gross domestic output (GDO) growth also climbed faster than expected in June by 0.4 per cent month-on-month, after a 0.1 per cent fall in May. Services output grew 0.3 per cent month-on-month, construction output by 0.3 per cent month-on-month and production output grew 0.7 per cent month-on-month.

While above forecasts, the overall state of the economy remains one of relatively lacklustre growth – a situation that the UK government says it is trying to address.

UK Chancellor of the Exchequer said the figures “show continued growth in the second quarter, but there’s more to do to deliver an economy that works for working people” while Conversative shadow chancellor Mel Stride said Reeves' “economic vandalism is clear.” The Liberal Democrat Treasury spokesperson said the government must scrap the recent £25 billion ($34 billion) increase in employers' National Insurance contributions, which has been blamed for hitting employment.

The GDP figures come ahead of the Autumn Budget when further tax rises are being mulled over to plug a hole in public finances that some reports have said could be as large as £40 billion ($54.2 billion). One consideration is to abolish the “seven year rule” which enables gifts to be exempt from inheritance tax (IHT) seven years before someone dies. This would squeeze the wealth of the UK’s middle classes, who are already being hit by the freeze in inheritance tax thresholds at £325,000. See more commentary here.

Here are some reactions from investment managers to the latest GDP figures.

Nicholas Hyett, investment manager at Wealth Club 
"GDP growth in June was a fair bit stronger than the market had been expecting, put that together with some significant upward revisions to April’s numbers and overall growth for the quarter wasn’t bad at all. After the tariff-induced volatility earlier in the year, the production sector has bounced back, helped by increased defence spending in certain sectors, while the motor industry enjoyed a month of strong sales amid growing demand for electric vehicles.

“The government can probably take some credit – with the UK-US trade deal coming into force at the end of June providing some much-needed certainty to UK exporters. However, it does raise some interesting questions for the Bank of England – where interest rate decisions are on a knife edge. An annualised GDP growth rate of 1.26 per cent is hardly spectacular, but might be better than risking an inflationary overshoot – especially with 4 per cent inflation expected in September anyway. Better leave the economy sputtering into life than risk turbo charging price rises with further interest rate cuts."

Pierre Roke, analyst at Validus Risk Management
”Following the Bank of England’s recent meeting, the focus appears to have shifted from labour market conditions and growth towards persistent inflation, with rising rate expectations pushing the Cable back to recent highs. Today’s print will help temper stagflation fears and ease the pressure on Prime Minister Keir Starmer and Chancellor Rachel Reeves as the government navigates an increasingly fragile economic backdrop. Looking ahead, markets will be closely watching the Monetary Policy Committee (MPC) policymakers’ guidance on future rates – whether they choose to support slowing growth or maintain a more restrictive stance to tame inflation.”

George Brown, senior economist, Schroders
"After a strong start to the year, the UK economy took a breather in Q2. Much of the slowdown reflects a drop in manufacturing following tariff frontloading in Q1. This drag should ease in the third quarter, even against a tougher global trade backdrop. Still, hopes of a sharp rebound are likely to be dashed. The labour market has softened, and capacity constraints mean that even tepid growth is generating inflation pressures. With this in mind, we expect the Bank of England to keep rates on hold for the remainder of the year." 

Julian Jessop, economics fellow at the Institute of Economic Affairs
"The latest GDP data should ease fears that the UK economy is sliding back into recession. But growth is still too weak to fix the public finances, or encourage hiring and investment, and there are already signs that the positive momentum is fading again.Encouragingly, the economy appears to have stabilised after the shock of the increases in tax and other costs in April.

"The latest UK GDP data bring quarterly growth closer to the underlying trend of 0.2 to 0.3 per cent suggested by the business surveys, or about 1 per cent annually. That is at least better than stagnation, but 1 per cent would be little different from last year, when the economy grew by 1.1 per cent. Indeed, growth in each of the first two quarters of 2025 was still slower than in the same two quarters of 2024. Moreover, there are already signs that consumer and business confidence are stuttering again as inflation picks up further and as another punishing budget looms in the autumn. The near-term prospects for the economy are still grim. As ever, more state intervention, more public spending, more borrowing, and even more taxation cannot lay the foundations for sustainable growth."

Oliver Blackbourn, portfolio manager at Janus Henderson Investors
“The UK economy expanded more than expected in the second quarter, helped by higher-than-expected exports and government spending. However, private consumption and business investment were lower as inflation is rising again, the jobs market appears to be weakening and economic uncertainty remains very high. The UK is likely to see a real income squeeze in the coming months, as inflation looks set to rise further and wage growth has been moderating. Confidence among consumers remains weak and a squeeze on spending isn’t going to help that, with surveys already showing that individuals are wary of making major purchases. Business confidence appears to be improving but uncertainty about policy makes it difficult for firms to commit to longer-term investments. Greater clarity from the government might be needed to convince companies to commit to projects in the UK. Further signs of weaker growth in the private sector may exacerbate the difficult environment for the Bank of England as they expect core inflation to head to 4 per cent in the next few months. The latest set of votes from the MPC suggested that inflation is preying on their minds a little more despite signs of weakness in the labour market.”

Neil Birrell, chief investment officer at Premier Miton Investors
"The UK economy displayed some surprising resilience in the second quarter; whilst being weaker than the first quarter it grew more than expected. This will come as welcome news to the Chancellor. However, depending on which data point you look at, there are conflicting signals. But we can’t get away from the fact that growth is still sluggish and in need of support and stimulus. There is unlikely to be too much in the form of rate cuts and tax rises will hit the consumer and businesses alike."

Andrew Wishart, senior UK economist at Berenberg 
“As the Office for National Statistics revised away some of the fall in GDP in April, it now looks as though the UK economy weathered US tariffs and domestic tax hikes remarkably well in Q2. With the economy benefiting from fiscal support and showing little sign of interest rates slowing it down, the strong data support our view that the Bank of England will wait until next year before cutting the bank rate again.”