UK economy slows less than feared after tariffs

Britain’s economic rebound softens but outpaces expectations

Official data released Thursday showed that the United Kingdom’s gross domestic product grew by 0.3 percent during the April‑June quarter, a figure that outshines analyst forecasts of 0.1 percent growth following a stronger 0.7 percent rise in the first quarter.

Sectoral contributions drive Q2 expansion

• Services sector led the growth, with notable gains in computer programming, health care and vehicle leasing.
• Construction output also enjoyed a Q2 upswing, helping to offset a decline in manufacturing production.

Monthly corrections and employment trends

June’s GDP rose 0.4 percent after a slight contraction in April and May. The figure is seen as a welcome reprieve for the Labour government, which has struggled to muster a sustained growth trajectory.

Employment data for the same quarter highlighted a four‑year high unemployment rate of 4.7 percent, a rise attributed to a UK business tax hike introduced in April and the introduction of a 10 percent baseline tariff by the United States on most UK goods.

Trade agreement eases output pressures

Reaching an agreement in May, London and Washington cut levies on more than 10 percent of certain UK‑made products imported by the U.S., notably vehicles. Danni Hewson, head of financial analysis at AJ Bell, noted that the favourable trade agreement has helped to lift output, with June showing growth across all sectors, including manufacturing.

Tariff fallout weakens U.S. export demand

• Exports of goods to the United States fell by £700 million ($950 million) in the month to their lowest level since February 2022.
• Since April the value of goods exports to the United States has remained relatively low, the Office for National Statistics noted.

Bank of England’s monetary policy context

In response to the launch of tariffs, the Bank of England last week cut its key interest rate by a quarter point to four percent. Ruth Gregory, deputy chief UK economist at Capital Economics research group, cautioned that the weak global economy will remain a drag on UK GDP growth for a while, yet the full drag on business investment from April’s tax rises has yet to be felt.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, added that evidence of a more resilient economy may now prompt the Bank of England policymakers to adopt a slightly more cautious approach to interest‑rate cuts in the months ahead.