LONDON: Britain’s economy expanded by a stronger-than-expected 0.3% in the second quarter, preliminary data from the Office for National Statistics (ONS) showed on Thursday, as resilient services activity offset weakness in production and lingering trade uncertainty.
Economists polled by Reuters had forecast a modest 0.1% rise in gross domestic product (GDP) for the April-June period, following robust growth of 0.7% in the first quarter.
Monthly data showed GDP rose 0.4% in June, rebounding from a 0.1% contraction in May, as businesses adjusted to U.S. tariffs and domestic tax changes.
“The economy was weak across April and May, with some activity having been brought forward to February and March ahead of Stamp Duty and tariff changes, but then recovered strongly in June,” said Liz McKeown, director of Economic Statistics at the ONS.
Growth in Q2 was driven by services, notably computer programming, healthcare and vehicle leasing. Construction activity also rose, while production edged lower. Revised data for April showed a smaller contraction than previously estimated, contributing to the quarterly uptick.
“Services also drove growth in June with scientific R&D, engineering and car sales all having a strong month. Within production, which recovered, manufacture of electronics performed especially well,” McKeown added.
The pound was little changed against the dollar after the release, trading at $1.3577.
George Brown, senior economist at Schroders, said the economy “took a breather” in Q2 after a strong start to the year. “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,” he said.
“Still, hopes of a sharp rebound are likely to be dashed. The labour market has softened, and capacity constraints mean 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,” Brown added.
The GDP figures come days after the Bank of England cut interest rates by 25 basis points to 4%, citing persistent inflation — which rose to 3.6% in June from 3.4% in May — and signs of cooling in the jobs market.
The central bank said its monetary policy committee (MPC) “remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term.”
It noted that underlying GDP growth “has remained subdued, consistent with a continued, gradual loosening in the labour market,” and that “a margin of slack is judged to have emerged in the economy.”
The MPC’s decision followed a split vote, with four members favouring a hold, four backing a cut, and one calling for a deeper 50-basis-point reduction. A second round of voting led to the majority decision to cut rates by 25 basis points.
BOE Governor Andrew Bailey said the vote reflected a “finely balanced situation” in monetary policy. “There’s an upside risk to inflation… but that has to be set in the context of the labour market conditions, which appear to be softening,” Bailey told CNBC.