Maggie Pagano doubts Rachel Reeves' perspective, believing she is oblivious to the country's ongoing stagnation.
The UK economy experienced a significant slowdown in the second quarter of 2025, with GDP growth dropping to 0.3%. This marks a sharp decline from the first quarter's growth of 0.7%, raising concerns about the country's economic outlook.
The Chancellor, however, welcomed the figures as positive, although business leaders and economists are less optimistic. The slowdown was primarily attributed to a fall in capital investment and private sector trade, which has been impacted by lingering regulatory uncertainties and global trade challenges.
Conservative shadow chancellor Mel Stride criticised Labour's Rachel Reeves for living under a rock if she thinks the country is growing. Meanwhile, Aviva boss Amanda Blanc expressed concerns about threats of more inheritance tax changes causing a flurry of calls to the insurer and sleepless nights among customers. The Treasury's practice of making such threats, often referred to as "kite-flying," is criticised as a childish way of gathering reactions and not beneficial for business.
The jobs market numbers showed firms are shedding labor fast, with vacancies falling by 44,000 in the three months to June. Output per hour worked in the three months to June was 0.8% lower than a year earlier, showing a steep annual decline in productivity.
Inflation remains a concern, with CPI inflation at about 3.5% in Q2 2025. Despite this, the Bank of England’s approach to monetary policy will be critical in addressing inflationary pressures. Fiscal tightening is expected to dampen GDP growth in the near term, but government expenditure is expected to provide some support.
Looking ahead, the UK economy is forecast to grow by about 1.0% in 2025 and 1.9% in 2026. However, the growth rate is expected to remain close to its recent average near 1¼% before picking up later in the forecast horizon. The UK labour market is gradually loosening, with some spare capacity developing, which may help temper inflation but also signals softer demand conditions currently.
Despite the near-term challenges, London remains a global financial hub, and the UK economy shows resilience. Long-term prospects remain attractive to investors, supported by government expenditure, even though private consumption is subdued.
For those looking to manage their own investments, platforms such as AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212 provide learning resources and services to help individuals navigate the UK's economic landscape.
[1] Office for Budget Responsibility (OBR) Economic and Fiscal Outlook, July 2025 [2] Bank of England Inflation Report, August 2025 [4] Institute for Fiscal Studies (IFS) Green Budget, July 2025
- Business leaders and economists, less optimistic about the UK's economic outlook, fear that the slowdown, primarily attributed to decreased capital investment, could lead to increased taxes as the government seeks ways to generate revenue.
- As the Chancellor considers implementating more inheritance tax changes, insurance companies, like Aviva, may witness an increase in calls from anxious clients, raising concerns about the potential impact on pension planning and long-term financial security.
- Looking towards the future, individuals who wish to manage their own investments can find resources and services on platforms such as AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212, which can help navigate the UK's economic landscape, especially during periods of fiscal tightening and inflationary pressures.
