Deutsche Bank Says There's Much to Be Desired After U.K.'s Better-Than-Expected Q2 GDP

08:40 AM EDT, 08/14/2025 (MT Newswires) -- Against wide expectations that the economy would just about stall in Q2, the United Kingdom economy surpassed Deutsche Bank's forecasts yet again as it expanded by 0.3% quarter over quarter.

Unrounded, U.K. GDP grew by 0.345% on the quarter -- a hair's breadth away from an even stronger surface print, noted Sanjay Raja, Deutsche Bank's chief U.K. economist, after Thursday's data. This puts the U.K. on course to become the second fastest-growing economy in the G7 after claiming the top prize in Q1 2025.

Underneath the surface, though, there's much to be desired, pointed out Raja. The biggest contributor to GDP growth came via government spending. Public consumption and investment shot up 2% on the quarter and were the largest contributors to GDP -- adding 0.5pp to quarterly GDP.

The bank also saw a further build-up of inventories in spring as United States President Donald Trump's trade war began -- stocks added 0.2pp to GDP growth. Most surprisingly, net trade was also a positive contributor to growth, outpacing almost all expectations. Exports were up 1.6% quarter over quarter. Imports were up 1.4% quarter over quarter.

Household spending disappointed -- the growth engine of the U.K. economy nearly stalled coming in at a "paltry" 0.1% quarter over quarter. Business investment too dipped, falling by nearly 4% quarter over quarter. Put simply, households and businesses were less active over the spring months -- perhaps owing to the increase in global uncertainty and the start of the trade wars.

The good news is that the strength of the June GDP print should imply some strong and positive 'carry over' effects into Q3 2025, added Raja. Indeed, Deutsche Bank estimates the Q3 carry-over effect to amount to just under 0.15pp. Q3 2025 GDP now looks on track to push to just around 0.2-0.3% quarter over quarter.

While the bank previously saw some downside risks to its annual 1.2% growth projection, Thursday's data points in the opposite direction -- a welcome sign for Finance Minister Rachel Reeves and the OBR.

To be sure, the economy is growing, stated Raja. Positive momentum is brewing. "But animal spirits remain tepid."

While Reeves is poised to focus her Budget on improving productivity -- a very welcome focus for the U.K. -- the minister should also prioritize lifting household and business confidence to sustain the U.K.'s outperformance, according to Raja.

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