UK Economy Surpasses Estimates, But Growth Outlook Remains Tense

The UK economy has experienced a boost in growth, surpassing initial estimates. According to new data from the Office for National Statistics (ONS), gross domestic product (GDP) rose by 0.5% between April and June, higher than the previously estimated 0.4%. This news will be welcomed by Chancellor John Healey as he prepares for his first Budget on October 28.

The increased growth is attributed to stronger exports and business investment, which have contributed to a revised annual GDP forecast from 1.2% to 1.4% by consulting firm RSM UK. This uptick in the economy will likely result in higher tax receipts and reduced pressure on public finances for Healey.

However, experts caution that high energy prices and rising inflation due to the war in Iran may lead to a slowdown in growth in the fourth quarter of this year and early next year. Thomas Pugh, chief economist at RSM UK, noted that while the economy has been resilient so far this year, 'the growing headwinds will almost certainly cause growth to slow sharply.'

Additionally, the ONS reported that GDP growth across 2025 was lower than previously thought, with a revised estimate of 1.2% last year. Consumer spending rose by 0.3%, while business investment increased by 1.8%. However, the production sector shrank by 0.1%, driven by drops in electricity and gas supply.

Experts remain wary about the growth outlook due to high borrowing costs and inflationary pressures on households and businesses. Richard Carter, head of fixed interest at Quilter Cheviot, warned that 'shoots emerging in recent months risk being cut down' if tax rises or other measures are announced at the Budget.