UK's economy experiences milder-than-anticipated contraction during Q2
The British economy demonstrated resilience in the second quarter of 2022, growing by 0.3%, according to official data. This growth was slightly better than analyst expectations of only 0.1% and outperformed many European economies [1][2][3].
Despite this positive growth, the economy faced challenges from increased costs and trade disruptions due to US tariffs and a rise in UK business taxes. The value of goods exports to the US fell by 700 million pounds ($950 million) in June, reaching their lowest level since February 2022 [4][2]. This drop was partially due to the 10% baseline tariff that the US imposed on the UK in the same month as the business tax increase [1].
The UK government raised business taxes in April 2025, including national insurance contributions on employers. This tax increase contributed to a slowdown in GDP growth from 0.7% in Q1 to 0.3% in Q2, as companies adjusted and some activity was pulled forward before the tax hikes [1][2].
The growth in Q2 was led by the services sector, which includes computer programming, health, and vehicle leasing, as well as construction. These sectors offset a drop in industrial production, which saw a decline in the second quarter [1]. June saw a rebound after weak months in April and May, reflecting partial recovery.
The full negative effects of tax rises on business investment have yet to be felt, and ongoing speculation about further tax rises in the autumn budget will keep consumers and businesses cautious. However, evidence of a more resilient economy may mean that Bank of England policymakers are more reticent about cutting interest rates in the months to come [1].
The weak global economy will remain a drag on UK GDP growth for a while yet. Despite these challenges, the UK economy was among the best-performing G7 economies for the first half of 2025, growing at a 2.2% annualized rate [3].
Susannah Streeter, head of money and markets at Hargreaves Lansdown, described the government's growth as "frustrating". She noted that ongoing speculation about further tax rises will keep consumers in a cautious mood [1].
In conclusion, while US tariffs and higher business taxation suppressed growth and increased costs for UK firms in Q2 2022, the economy still grew modestly, driven by the services and construction sectors, and showed signs of resilience amid fiscal and trade challenges [1][2][3][4].
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