UK Economy Beats Expectations, London Stocks Remain Muted

London stocks remained muted, beaten by European peers, as UK economic growth exceeded expectations and investors weighed potential tax changes in the autumn Budget. The FTSE 100 index was down 0.1%, while the Cboe UK 100 was slightly lower. UK GDP rose 0.3% in Q2, slowing from a 0.7% expansion in Q1, and Chancellor Rachel Reeves said decisions around taxes will have to wait for the autumn Budget.

London stocks remained muted, beaten by European peers, as the UK economic growth exceeded expectations in the second quarter (Q2). The FTSE 100 index was down 0.1%, while the Cboe UK 100 was slightly lower. UK GDP rose 0.3% in Q2, slowing from a 0.7% expansion in Q1, according to data published by the Office for National Statistics [1].

The better-than-expected GDP growth was driven by stronger performance in the services and construction sectors, which grew at 0.4% and 1.2% respectively. However, production output, which includes manufacturing, fell. Real GDP per head is estimated to have grown by 0.2% in the latest quarter and is up 0.7% compared with the same quarter a year ago [1].

Chancellor Rachel Reeves indicated that decisions around taxes will have to wait for the autumn Budget. The Treasury is considering ways to raise more money from inheritance tax and capital gains tax to address a £40bn-plus spending gap, amid slowing economic growth and higher inflation [4].

Corporate earnings reports also contributed to the market's subdued performance. Aviva shares rose 2% after posting stronger-than-expected first-half results, while Admiral Group shares climbed more than 5% following a 69% increase in earnings. PensionBee Group plc shares gained 1.05% after reporting strong asset growth and profitability in its UK operations [2].

Investors remain cautious, awaiting further clarity on tax policies and their potential impact on the economy. The UK economy's resilience in the face of global trade tensions and tax increases underscores its adaptability, but the path forward remains uncertain.

References:
[1] https://www.theguardian.com/business/live/2025/aug/14/uk-economy-gdp-growth-june-rachel-reeves-federal-reserve-us-economy-inflation-bank-of-england-pound-sterling-ftse-business-live-news-updates
[2] https://www.investing.com/news/stock-market-news/ftse-100-today-uk-economy-beats-q2-forecasts-aviva-admiral-report-4190997
[4] https://www.theguardian.com/uk-news/2025/aug/12/treasury-targeting-inheritance-tax-reforms-to-help-plug-uk-deficit