After strong gross domestic product (GDP) growth in the first quarter of 2025, the UK economy looks set to grow more slowly over the rest of the year. Nevertheless, some indicators tentatively point to economic conditions improving in the past couple of months.
This Insight focuses on latest indicators for the UK economy, as well as providing a summary of the raft of government strategies related to the economy that were published in June.
Second quarter GDP growth likely to slow
GDP in April fell by 0.3% compared with the previous month, following growth of 0.2% in March and 0.5% in February. The decline in April was mostly a result of a 0.4% decline in the services sector, which accounts for around 80% of GDP.
Monthly GDP is volatile and shouldn’t be overinterpreted. Nevertheless, other indicators also point to GDP growth slowing during the second quarter, following a strong gain of 0.7% in the first quarter.
For instance, the closely watched purchasing managers’ index produced by S&P Global showed sluggish growth in business activity in May and June, following a dip in April.
The Bank of England thinks that quarterly GDP growth is likely to slow to around 0.25% in the second quarter of 2025, which is slightly higher than it had previously been expecting. This is similar to a projection of 0.3% made by the National Institute of Economic and Social Research think tank.
Labour market weakening
The Bank of England’s Monetary Policy Committee (MPC) left interest rates unchanged at 4.25% at their June policy meeting. The MPC noted that “the labour market has continued to loosen”, highlighting a trend of declining demand for labour.
For instance, the number of job vacancies have consistently fallen since peaking in 2022 and are now below their pre-pandemic level, as the chart below shows. In addition, estimates from the Office for National Statistics and HM Revenue and Customs show that the number of payrolled employees has fallen in 2025 to date, also shown in the chart below.
Signs of confidence holding up
Despite the large degree of uncertainty surrounding global developments and how they might affect the UK, not all economic indicators point to deteriorating economic conditions.
Some recent surveys of businesses and consumers indicate confidence has risen recently.
The Lloyds Bank business barometer, a survey of UK companies, showed some improved confidence among firms in May, more than making up for the decline seen in April. Notably, May’s reading was the highest in nine months, reflecting improved economic optimism among businesses.
Similarly, the GfK consumer confidence barometer, a prominent measure of the economic mood of households, improved for the second consecutive month in June. Confidence is still lower than a year ago, but there have been improvements in consumers’ expectations for their own personal finances and the general economic situation over the next 12 months.
New strategies and long-term spending plans
In June, the government announced several spending and policy plans. These set out the government’s priorities in the medium-to-long term and its direction for economic policy and public spending.
On 11 June, the outcome of the Spending Review was published, setting departmental budgets for the next few years. Overall budgets for day-to-day spending (known as resource departmental expenditure limits) are scheduled to increase by an average of 1.2% a year in real (inflation-adjusted) terms between 2025/26 and 2028/29, with investment spending rising by an average of 1.8% a year between 2025/26 and 2029/30. Further detail is provided in the Commons Library research briefing Spending Review 2025: A summary.
The government published a consultation on the Fair Funding Review 2.0 on 20 June. This will change the distribution of funding to local authorities in England between 2026/27 and 2028/29, largely by reassessing relative levels of needs and resources in local authorities. The overall amount of money available was set in the Spending Review.
On 23 June, the government published its industrial strategy. This laid out a wide-ranging set of policies intending to increase investment, productivity and growth in the UK. It involves a more interventionist state, focusing on eight sectors viewed as high growth (such as the creative industries) and the government described it as “unashamedly long-term” in nature.
This followed the release of the government’s infrastructure strategy on 19 June, which set out a 10-year plan for how government will invest and “ensure that funding is spent effectively and efficiently.” The strategy includes both economic infrastructure (such as transport and digital) and social infrastructure (such as hospitals and schools). Further detail is provided in the Commons Library research briefing Infrastructure in the UK.
Finally, the government’s trade strategy was published on 26 June, outlining its priorities for trade agreements and setting out some support for businesses.
About the author: Daniel Harari is a researcher at the House of Commons Library, specialising in the UK and international economies.
Photo by: IRStone via Abode Stock