The UK economy grew by just 0.3% in the second quarter of 2025, less than half the 0.7% recorded in Q1. The slowdown follows a surge in exports earlier in the year ahead of new tariffs and comes despite 0.4% growth in June.
Professor Joe Nellis, economic adviser at accountancy and advisory firm MHA, said the figures underline the challenge facing Chancellor Rachel Reeves ahead of the Autumn Budget. “Sluggish economic growth means tax revenues will not reach the levels needed to maintain the government’s current fiscal strategy,” he said. “The Chancellor may be forced to raise taxes in the Budget to keep the ship afloat.”
A key concern is the persistently high household savings ratio, which peaked at 12% in late 2024 and has remained above 10% since. While higher savings can signal financial caution, they also indicate consumers are holding back on spending — a trend that reduces demand, slows business revenues, and discourages investment.
Professor Nellis warned that continued weak consumer confidence, fuelled by uncertainty over potential tax rises, could risk tipping the economy towards recession. “The economy relies heavily on household consumption to drive activity. If spending doesn’t pick up, we face weaker job creation and slower growth,” he said.
Historically, savings levels this high have only been seen during periods of major economic stress — including the early 1980s recession, the early 1990s downturn, after the 2008 financial crisis, and during the pandemic.
The Chancellor’s options are limited by her commitment to fiscal rules, meaning she will have to choose between cutting public spending or raising taxes. Strong opposition within the Labour Party to spending cuts increases the likelihood of tax rises, which could further slow growth.
With the next few months seen as critical for restoring confidence, Professor Nellis said the recent interest rate cut offers some relief for businesses, but further cuts would be welcome. “Economic recovery will depend on global conditions and the ease of exporting to the world. The government needs to find a way to inject momentum into the UK economy — but that is easier said than done.”
