Client Update - 15th August 2025

This week we heard that the UK economy expanded 0.3% in the second quarter of 2025, surpassing expectations but underlining the challenges facing chancellor Rachel Reeves as she attempts to boost growth and repair the public finances. It is safe to say 0.3% is not an exciting figure. To cover out vast debt, we have to grow, and at a faster level than this. Nonetheless, Thursday’s GDP figure for the April-to-June period was above the 0.1% forecast by economists but still marked a sharp slowdown from the 0.7% growth in the first three months of the year.

Businesses are still contending with the higher taxes announced in Reeves’ 2024 October Budget and the uncertainty unleashed by Donald Trump’s trade war. If we believe the press, Reeves is now gearing up for an Autumn Budget that economists say will require further tax increases to fill a fiscal hole that some estimate may exceed £20bn and possibly as much as £50bn.

Labour had previously hailed the UK economy’s first-quarter growth as a positive step and showed that the allegedly “much maligned” Autmn 2024 budget (not my words) was not as bad as some have suggested. Businesses, however, still warn that higher taxes and a steep increase in the minimum wage have hit confidence, driving up costs and have curbed hiring.

The second-quarter figures also revealed an economy heavily reliant on the public sector, with government spending up 1.2%. In contrast, business investment fell 4% in the period, reversing a 3.9% rise in the first three months of the year.

Separate figures released on Thursday showed that the UK trade deficit widened to £9.2bn in the second quarter as exports to the US fell by £700mn in June to their lowest level since early 2022. The slowdown last quarter also highlights the predicament facing the Bank of England’s Monetary Policy Committee (MPC) as it considers when to next cut interest rates after the summer. The MPC reduced interest rates by a quarter point to 4 per cent last week but the knife-edge vote and higher inflation forecasts prompted markets to scale back expectations for further cuts this year.

In a desperate effort at trying to control some really negative sentiment, it was perplexing to hear this week that, according to Labour, most UK agricultural estates can cope with the cost of higher Inheritance Tax (IHT) duties without being forced to sell the family farm. Apparently, and in complete contrast to our own experiences, eight out of ten farm estates affected by changes to the IHT regime set out in the autumn Budget would be able to pay their entire IHT bill out of non-farm assets, according to a study by the Centre for the Analysis of Taxation, which produces independent academic research on tax policy.

Chancellor Rachel Reeves caused great and understandable upset in rural communities in October 2024 by announcing that farmers with assets of more than £1mn will have to pay IHT from April 2026 as she sought to tackle loopholes in wealth taxation. However, around 70 farming estates a year out of 1,560 in total could not cover the liability from non-farm assets, the report found. Of these, around 40 farm estates a year would face a residual bill greater than 20 per cent of the farm’s income.

Despite earlier calls for a U-turn, the NFU welcomed the findings of the report, saying it presented an opportunity for the government to rework the reforms. “There are interesting adjustments within the report, that appear to mitigate the impacts on the most vulnerable in our community and enable farms to invest in the future of food production with greater confidence,” said NFU president Tom Bradshaw. The research was based on detailed analysis of HM Revenue & Customs data. It found that between 480 and 600 farm estates a year would be affected by the reform, representing under a third of farm estates. It is very hard to reconcile this data and we await further guidance on this crucial area of taxation.

Over the summer, investment markets continue to move forwards and despite an uncertain economic outlook, this positive progress allows us to remain confident in opportunities ahead. In light of this, I do hope that this update finds you keeping well and enjoying your summer. I am now off for a few weeks, so I will write again at the start of September. Until then, take care, enjoy this lovely summer weather and do have a good weekend.