Decoding the UK Economy: What the Latest GDP Figures Mean for Your Mortgage

Decoding the UK Economy: What the Latest GDP Figures Mean for Your Mortgage Published: August 14, 2025 The UK economy grew by 0.3% in the second quarter of this year (April-June), surpassing the initial forecast of 0.1%. While a positive surprise, this growth is a slowdown from the robust 0.7% experienced in the first quarter. This "mixed picture" has sparked debate among economists and could have a ripple effect on the mortgage market.

Diving Deeper into the Numbers

The Office for National Statistics (ONS) reported that the Q2 growth was primarily driven by a 0.4% increase in the services sector and a significant 1.2% jump in construction. However, the production sector experienced a contraction of 0.3%. A closer look at June shows growth in all three sectors, contributing to an overall 0.4% jump. Deutsche Bank’s chief UK economist, Sanjay Raja, believes this strong June performance will have positive "carry over" effects into Q3, reaffirming their 1.2% growth forecast for 2025. A Return to "Anaemic Mean"? Despite the promising Q1, some experts suggest the UK economy might be reverting to a period of weaker growth. Quilter investment strategist Lindsay James points to a weakening labor market, planned tax increases, and global uncertainties as factors making business planning challenging. She emphasizes the lack of easy fixes and short-term solutions for these issues.

The Silver Lining: Mortgage Market Maneuvers

While the broader economic picture presents challenges, the mortgage market has seen a flurry of activity in the past few months. According to John Charcol mortgage technical manager Nicholas Mendes, the market feels more settled compared to a year ago, with rates gradually edging downwards. This is attributed to falling swap rates and increased competition among lenders. Many banks, behind on their annual lending targets, are sharpening prices to attract remortgage business. This has led to the current situation where two- and five-year fixed deals are dipping below 3.8%, even though inflation remains above the target. While the gap between pandemic-era sub-2% mortgages and today’s rates persists, the initial "payment shock" of 2023 (when two-year fixes averaged a lot higher than they currently are) has significantly eased. Mendes anticipates gradual reductions rather than dramatic falls in the coming months, with best-buy rates potentially reaching the mid-threes in 2026, assuming stable inflation and labour market data. However, he cautions that markets can shift rapidly.

Navigating Uncertainty: The Bank of England’s Perspective

Trinity Financial products and communications manager Aaron Strutt highlights the constant need for banks and building societies to adapt their rates and criteria to maintain lending volumes in a dynamic market. The latest economic growth figures only add to the uncertainty faced by the financial and property sectors. Even the Governor of the Bank of England, Andrew Bailey, has acknowledged the current uncertainty and its impact on people’s attitudes towards buying property and spending.

Key Takeaways for Homebuyers & Homeowners

• The UK economy shows signs of resilience, but faces headwinds from a weakening labour market and global uncertainties.
• Mortgage rates have been slowly decreasing due to increased competition and lower swap rates.
• Competition among lenders is driving attractive deals, with some 2- and 5-year fixed rates below 3.8%.
• While rates are unlikely to return to pandemic-era lows, the worst of the "payment shock" appears to be over.
• Expect gradual rate reductions in the near term, with potential for further drops towards the mid-threes in 2026 if economic data remains stable.
• Crucially: The economic outlook remains uncertain, and the market can be volatile.

Disclaimer: This information is for general guidance only and not financial advice. Consult with a qualified financial advisor before making any decisions related to your mortgage or finances.