The UK economy fared better than expected in the second quarter, bringing some relief for Chancellor of the Exchequer Rachel Reeves but raising the bar to further interest-rate cuts from the Bank of England.

Gross domestic product rose 0.3%, the Office for National Statistics said Thursday, beating the 0.1% forecast by both private-sector economists and the Bank of England. Output in June alone gained 0.4% — double expectations — following modest declines in the previous two months. 

The figures suggest the economy held up during what always expected to be a difficult period as businesses and consumers were hit by Reeves' £26 billion ($35.2 billion) payroll tax raid, inflation-busting hikes to regulated prices such as energy and increased taxes on home purchases, as well as US President Donald Trump's tariffs. 

Growth of 0.7% in the first quarter was artificially boosted by manufacturers trying to get ahead of US tariffs, though Prime Minister Keir Starmer repeatedly hailed Britain outperforming the other Group-of-Seven nations as evidence of the economy turning a corner.

The data also appear to further muddy the BOE's decision over whether to carry on cutting interest rates from the current 4% after statistics on Tuesday showed the economy has lost fewer jobs than initially thought since Reeves' tax-raising budget last October. Traders are no longer fully pricing in a further reduction this year, and expect borrowing costs to settle at 3.5% next year.

Source : Bloomberg