Why did the UK economy grow over the past quarter and what does it mean? (2025)

The UK economy posted another quarter of growth between April and June on the back of a stronger services sector, according to official figures.

The Office for National Statistics (ONS) revealed the rise as the new Labour Government hopes for economic growth in order to support its plans for the wider economy.

But what do the figures actually tell us, and what impact will they have? The PA news agency explains:

– What is GDP?

GDP stands for Gross Domestic Product.

This is the measure typically used to describe the size of a nation’s economy.

It is the measure of activity across all companies, governments and households.

Economic growth therefore indicates when households and firms are increasing their spending and more work has been created, while a contraction will highlight that people and firms are pulling back spending.

When an economy contracts for two quarters in a row – as happened over the latter half of 2023 – it is defined as a recession.

-What happened over the latest quarter?

On Thursday, the ONS said GDP increased 0.6% between April and June this year.

The ONS said there was no economic growth recorded for the month of June, compared with the previous month.

This followed 0.4% growth in May, after growth was also flat in April.

The second quarter improvement came after a 0.7% increase for the first quarter of 2024, as the economy rebounded from the shallow recession at the end of last year.

Why did it grow?

The latest quarterly growth was “led by the service sector”, according to ONS director of economic statistics Liz McKeown.

Within this, there was particular growth in the scientific research, the IT industry and legal service sectors.

The services sector as a whole was 0.8% larger for the quarter.

This offset 0.1% contraction in the production industry, and a similar contraction in construction, which both came under pressure from high borrowing costs and pre-election uncertainty.

What does this mean for the Government?

Broadly, another quarter of solid economic growth is positive for the Government, with GDP rising at a faster rate over the year so far than it did in 2023.

Chancellor Rachel Reeves however stressed on Thursday that the Government is still faced with a challenge “after more than a decade of low economic growth”.

Ms Reeves and the Government has made economic growth a key focus, looking towards an increase in economic activity to draw in higher tax revenues which it can put towards spending plans.

Current growth is ahead of predictions the state’s official forecaster, the Office for Budget Responsibility, made in its previous predictions in March.

The Chancellor will therefore hope economic growth can continue on this trajectory and provide forecasts which will show higher tax revenues and a larger financial buffer for the Treasury.

What about the Bank of England?

This week has been another important week for UK economic news, which the Bank of England’s Monetary Policy Committee (MPC) will have been keeping an eye on.

Earlier this month, the central Bank reduced interest rates for the first time since 2020 to 5% after a significant reduction in inflation.

Central banks typically cut interest rates when spending from firms and households is relatively low or inflation is slowing.

Currently, traders have predicted the Bank will hold interest rates at the MPC meeting in September after the latest growth data and an uptick in inflation to 2.2% in July.

However, they are still expect to cut rates to 4.75% later this year, with many pencilling in a reduction in November’s meeting.

Michael Field, European equity strategist at Morningstar, said the reading “adds weight” to calls for a rate cut later this year.

“The economy is improving, but it is off a low base, with many sectors still lagging,” he added.

What next for the economy?

The Bank of England said earlier this month it now expects the economy to grow by 1.25% after growth in the first half of the year surpassed its initial predictions.

Growth in June was slightly lower than many economists predicted, but the trajectory is still broadly on track.

Some experts also improved their forecasts on Thursday, with greater business certainty since the general election showing improvements across many industries in monthly PMI (purchasing managers index) data.

NEISR associate economist Hailey Low said: “This stronger-than-expected growth, seen over the first half of 2024, came in on the back of robust PMIs observed over the past few months and improving economic conditions.

“Coupled with increased business optimism ahead, we now forecast GDP to grow by 0.4% in the third quarter of 2024.”