UK leads G7 growth
UK Q2 economic growth is revised upward, making it the fastest-growing G7 economy.
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Key Points
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Alongside the quarterly upgrade, annual growth was revised up to 1.4%, while the estimate for full-year 2025 growth was lowered to 1.2%.
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The household saving ratio rose by 0.2 percentage points to 8.8%, even as consumers continued spending during the first half of the year.
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The current-account deficit was £19.9 billion, below economists’ £24.7 billion forecast.
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One economist warned that tighter financial conditions were already squeezing credit growth, after markets repriced interest rates to expect five hikes rather than one since the start of the Iran war.
The UK economy expanded 0.5% in the second quarter, beating the Office for National Statistics' initial estimate of 0.4%, according to ONS revised figures. The upgrade makes Britain the fastest-growing G7 economy in the first half of the year, buoyed by stronger household incomes, business investment, and exports.
However, economists warn that rising energy costs and higher interest rates could soon brake growth. The current-account deficit narrowed to its smallest share of output in five years, hitting £19.9 billion — well below the forecast of £24.7 billion, IJR reported.
Revised Growth Lifts Annual Forecast
The 0.5% quarterly jump follows 0.6% growth in Q1, pushing annual growth for the first half of 2024 to 1.4%, up from the prior 1.3% estimate, according to Credit Connect. However, full-year 2025 growth was cut to 1.2%, signaling economists' concern about the months ahead.
Services and exports both contributed to the revision, Ask Traders noted. These sectors offset softer consumer spending during the quarter, though household incomes strengthened and disposable income per person rose 1%.
Household Finances Show Modest Recovery
British households increased their savings even as they continued to spend during the first half of the year. The household saving ratio rose 0.2 percentage points to 8.8%, driven by improving incomes, Swap Update reported. Disposable income per person climbed 1%, offering some relief after years of pressure.
Despite the improvement, tighter financial conditions are already squeezing credit growth. Markets have repriced interest rates to expect five hikes rather than one since the Iran war began, putting pressure on borrowing and future spending.
Energy Costs and Rate Risks Loom
The revised figures offer temporary relief for the government ahead of its October budget. Yet economists caution that headwinds are building. Higher energy costs will bite household budgets soon. Interest rates remain elevated, dampening business expansion and consumer confidence.
One bright spot: business investment in artificial intelligence may drive future productivity gains. AI spending has grown more than previously estimated, IJR noted, suggesting potential for long-term economic strength if the technology delivers on its promise.
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