UK economy grew faster than expected in first quarter

Athena Stavrou, The Independent

The UK economy grew by 0.7 per cent in the first three months of the year, new official figures show. Gross Domestic Product (GDP) grew faster than expected and at the fastest rate in a year, according to the Office for National Statistics, in a boost to Chancellor Rachel Reeves. The figures showed economic growth in the first quarter of 2025 — the period directly before US Donald Trump’s “Liberation Day” in early April. The US president imposed sweeping tariffs on countries around the world — including the UK — which sent global markets tumbling and prompted economic instability. Ms Reeves said the growth figures showed the Government was “making the right choices” but acknowledged “there is more to do”.

“Today’s growth figures show the strength and potential of the UK economy,” she said. “In the first three months of the year, the UK economy has grown faster than the US, Canada, France, Italy and Germany. Up against a backdrop of global uncertainty we are making the right choices now in the national interest.” She added: “Our plan for change is working. But I know there is more to do and that is why I’m determined we go further and faster to make working people better off.” The 0.7 per cent growth means it came in ahead of economists’ expectations of 0.6 per cent growth for the quarter.

It was also the highest GDP rate since the first quarter of 2024, when the economy jumped by 0.9 per cent. Sir Keir Starmer said the figures showed he was meeting his goal of having the highest growth in the G7 group of leading democracies. Sir Keir said: “We’ve had four interest rate cuts since July and wages are rising faster than prices. “But I know the Tory cost of living crisis isn’t over — we will go further and faster to deliver for working people.” Economists at the Confederation of British Industry (CBI) said the rise in activity was “a pleasant surprise”, but warned the strength of GDP over Q1 is “likely to prove a one-off”.

“Businesses remain cautious over hiring and investment plans given the steep rise in employment costs following the Autumn Budget,” Ben Jones, lead economist at CBI said. “Now is a critical time for government to hardwire growth into the economy through the upcoming Spending Review.” Company national insurance contributions increased from April, which some economists have said will force firms to cut jobs. And the US imposed a 10 per cent blanket tariff on most UK goods entering the world’s biggest economy, which is expected to directly impact exporters and has led to heightened uncertainty affecting businesses and households. The latest figures show that economic growth slowed to 0.2 per cent in March, from 0.5 per cent in February, as activity among UK factories began to slump.

Liz McKeown, ONS director of economic statistics, said: “The economy grew strongly in the first quarter of the year, largely driven by services, though production also grew significantly, after a period of decline. “Growth in services was broad based, with wholesale, retail and computer programming all having a strong quarter as did car leasing and advertising. “These were only slightly offset by falls in education, telecoms and legal services.” Ministers also acknowledged that the latest GDP figures do not yet account for the impact of the Government’s hike in national insurance contributions for employers.

Asked about the tax rise, which came into force in April, Treasury minister Emma Reynolds told BBC Breakfast: “Sure that’s true, because it’s about the first quarter of the year, so January to March. I mean, obviously I’m not going to sit here and predict what might happen after that, but I think the fundamentals of the economy look very strong.” Shadow chancellor Sir Mel Stride also pointed out that both the Office for Budget Responsibility (OBR) and the International Monetary Fund (IMF) had downgraded short-term growth forecasts and hit out at the hike in employers’ national insurance, which he branded a “jobs tax”. “While it’s welcome the economy is growing, both the OBR and IMF have downgraded the UK’s growth,” Sir Mel said.