The Institute of Chartered Accountants in England and Wales (ICAEW) has indicated that the recent slowdown in the UK’s gross domestic product (GDP) growth is unlikely to influence the Monetary Policy Committee’s decision on interest rates.  

Real GDP increased by 0.3% in the second quarter of 2025 (Q2 2025), as reported by the UK’s Office for National Statistics (ONS).  

This represents a slowdown from the 0.7% growth observed in Q1.  

Some economic activities were advanced to February and March due to impending changes in stamp duty and US tariff announcements. 

Monthly GDP grew by 0.4% in June 2025, with all three sectors showing growth.  

This follows a 0.1% decline in May and an upwardly revised 0.1% fall in April.  

Suren Thiru, ICAEW economics director, noted that the economy lost momentum in Q2 due to rising costs and global trade disruptions. 

He commented: “The economy lost some momentum in the second quarter as several sectors weakened under pressure from ‘awful April’s’ surge in costs and the explosion of global trade turbulence, despite a robust return to growth in June.” 

After the strong start to 2025, the slower pace in Q2 provides a clearer indication of the UK’s underlying growth trajectory, reflecting ongoing challenges from weak productivity and strained public finances, Thiru explained.  

The ICAEW economics director believes that the UK’s economic performance in Q3 is also likely to remain subdued, as higher inflation and concerns about further tax increases in this autumn’s Budget are expected to encourage greater spending restraint, even with interest rates coming down. 

He concluded: “While these stronger than expected figures may not ease concerns among rate-setters over the health of the UK economy, a September interest rate cut remains implausible given mounting concerns over rising inflation.”  

The UK labour market is also under pressure, with increasing employment costs and a sluggish economy prompting businesses to reduce headcount and limit pay increases.  

Thiru highlighted that wage growth might weaken as economic conditions soften, redundancies rise and staffing costs remain high. 

The UK jobs market could face further challenges in the coming months, with higher labour costs potentially increasing unemployment.  

Concerns over potential tax rises in the Autumn Budget are adding to the uncertainty.