UK economy grows faster than first thought amid service sector boost

Britain’s economic growth was stronger than first thought in the second quarter as a hot weather and World Cup boost offset Iran war impacts, according to official figures.

The Office for National Statistics (ONS) said UK gross domestic product (GDP) increased by 0.5% between April and June, revised up from the 0.4% previous estimate thanks to stronger growth in the services sector.

It follows growth of 0.6% in the first three months of the year.

But revisions to past data also revealed growth was weaker than first thought last year, with growth of 1.2% for 2025 as a whole, down from the 1.3% previously recorded.

Liz McKeown, ONS director of economic statistics, said: “Growth for 2025 as a whole was a little lower than previously estimated, with the profile of growth across the quarters also revised.

“However, stronger services growth in the latest quarter means the economy is now slightly larger than previously estimated.”

While the UK economy has so far defied the gloom, experts are predicting a tougher end to the year as soaring energy and fuel prices caused by the Iran war are set to weigh on spending and growth.

The latest forecast from analysts Cornwall Insight on Wednesday warned annual household energy bills could soar by 16% in January – the largest rise for four years.

Most economists are predicting 1.2% growth for the year as a whole, which would point to “virtually no expansion over the second half of this year”, according to WPI Strategy chief economist Martin Beck.

He said: “High petrol prices, rising household energy bills and uncertainty ahead of the Budget are likely to take some momentum out of growth over the coming months.”

The ONS said second-quarter growth in the services sector stood at an upwardly revised 0.6%, with June seeing a bump as firms reported buoyant trade thanks to prolonged hot weather and the start of the World Cup football tournament.

Recent figures also revealed the UK economy recorded surprise growth of 0.4% in July as the AI spending boom helped deliver a boost, showing a more resilient than expected to start to the third quarter.

The latest ONS stats painted a resilient picture for household finances despite price pressures amid the Iran war, with consumer spending growth remained at the previous estimate of 0.3% in the second quarter, while business investment growth was revised up to 1.8%.

Households are also saving robustly with the saving ratio increasing from 8.6% to 8.8% as a 1% rise in real household incomes – following a decrease of 0.8% in the previous three months – outpaced growth in spending.

“The saving ratio remains comfortably above its pre-Covid 2015–19 average of 6.6%, suggesting there is scope for consumption to grow faster than incomes if economic uncertainty begins to recede,” Mr Beck said.

Investec economist Sandra Horsfield said the savings ratio pick up was likely as a result of recent attractive deals as banks have increased rates on lending and borrowing amid mounting speculation the Bank of England may hike the base rate before the year end.

“Given that market interest rates turned up again as the Iran conflict sent energy prices higher, incentives for households to keep saving have increased,” she said.