Figures from the Office for National Statistics (ONS) confirmed that growth had cooled from a strong 0.7% in the first quarter. This was attributed to activity being brought forward to beat changes to stamp duty and the introduction of US-led trade tariffs. The 0.3% figure for the three months to June comfortably beat forecasts of 0.1% from the Bank of England and City economists.

The quarter ended on a strong note, with the economy growing by a better-than-expected 0.4% in June after two months of weak output. The ONS also revised April’s contraction from −0.3% to a more modest −0.1%.

Chancellor Rachel Reeves said the figures were positive but stressed “there is more to do to deliver an economy that works for working people”. Growth was led by a 0.4% expansion in the dominant services sector, while construction output rose by 1.2%.

Despite the quarterly slowdown, analysts warn that sluggish underlying growth will reduce tax revenues, complicating the Chancellor’s fiscal plans. A central concern is the stubbornly high household savings ratio, which has remained above 10%. This indicates low consumer confidence, as people hold back on spending despite real wage growth, thereby dampening demand and discouraging business investment. This caution reflects household insecurity over potential tax rises and the high cost of living.

Economists believe this weak growth leaves the Chancellor with an unenviable choice: implement public spending cuts, which would face strong opposition, or raise taxes, which could stifle the economy further.

Scottish Friendly savings expert Jill Mackay said: “The weather is hotting up in many places across the UK, and so, it seems, is the UK economy, with a surprisingly strong reading for UK GDP. It reverses the recent run of weaker data and suggests it may have been caused by one-off factors such as tariffs and changes to stamp duty.

“It will be a relief for the Chancellor looking ahead to the October budget, making the sums a little easier. Nevertheless, options for balancing the books still look limited: raise taxes too far and it could send the economy backwards again, raise borrowing and bond yields could spike and spending cuts could face another backbench revolt.

“There are reasons why UK growth could be sustained, however. Wage growth is still strong, which is giving households more spending power. Equally, the UK may start to reap the benefits of recent trade deals over the coming months, which may fuel growth. The recent rate cut could also generate marginal improvements in the economic outlook.

“The one down side is inflation, which is also running as hot as the weather. Ultimately, households should try and make hay while the sun is still shining, building a financial cushion. This is likely to be the greatest defence if the economy turns cold again.”

The better-than-expected data is likely to convince the Bank of England that there is no rush to cut interest rates again, with policymakers expected to hold them steady in September. While the recent rate cut and strong wage growth may yet fuel a recovery, high inflation remains a significant downside risk. For now, the figures provide a measure of relief, but the outlook remains challenging for households and the government alike.