The United Kingdom’s economy demonstrated robust growth in the first three months of the year, expanding by a stronger-than-anticipated 0.7%, according to official figures.
This resilient performance comes despite earlier warnings from business circles about a potential collapse in confidence stemming from impending Labour tax increases and the ripple effects of US President Donald Trump’s sweeping tariff policies.
The Office for National Statistics (ONS) reported that Gross Domestic Product (GDP) rose at its most vigorous pace in a year.
This figure not only surpassed City economists’ predictions of a 0.6% rise but also marked a continued expansion from the 0.1% growth recorded in the final quarter of 2024.
The primary driver behind this economic vigor was Britain’s dominant services sector.
This latest economic snapshot is likely to provide a significant boost to Chancellor Rachel Reeves, particularly after business leaders had voiced concerns earlier this year that her proposed tax policies could negatively impact job creation and overall economic growth.
Headwinds on the horizon
Despite the positive first-quarter data, economists are sounding a note of caution, anticipating that growth for the remainder of the year is likely to be considerably weaker.
A primary concern is the potential fallout from President Trump’s “erratic tariff plans,” especially following his ‘Liberation Day’ announcement on April 2nd.
Reinforcing these concerns, the Bank of England stated last week that Britain’s economic prospects had deteriorated due to heightened global uncertainty surrounding the US president’s trade wars.
The central bank subsequently forecast near-stagnant economic activity for the rest of the year.
Seeking insulation and new alliances
Keir Starmer’s government has been actively working to shield the UK from these international economic tremors.
Efforts have focused on striking new trade deals and emphasizing the government’s industrial strategy.
Notably, an accord was reached with Washington to mitigate some of Trump’s tariffs on cars, aluminum, and steel.
Furthermore, the UK prime minister successfully concluded a long-anticipated trade deal with India and is set to push for closer trade relations with the European Union at an upcoming summit aimed at “resetting” ties with Brussels post-Brexit.
The strong first-quarter performance had been partly anticipated by analysts following an unexpectedly robust 0.5% expansion in February.
The latest monthly figures from the ONS revealed that GDP in March rose by 0.2%, again outperforming City forecasts which had predicted zero growth for the month.
British households have, thus far, shown resilience in the face of heightened economic uncertainty, even as surveys indicated a sharp decline in consumer confidence and business sentiment in recent months.
Services shine, manufacturing recovers
The ONS detailed that growth within the service sector was broad-based throughout the first quarter.
Retail, wholesale, and computer programming all experienced a strong start to the year, alongside car leasing and advertising.
This was only marginally offset by declines in education, telecoms, and legal services.
Complementing the 0.7% growth in services, the production sector – which encompasses manufacturing, mining, and energy – rose by 1.1%. Activity in the construction sector, however, showed no growth.
This positive data contrasts sharply with the alarms sounded by business leaders earlier in the year.
They had warned that Chancellor Reeves’s autumn budget, which included a £25bn increase in employer national insurance contributions from April, risked plunging the economy into recession.
Economists suggest that some of the first quarter’s strength can be attributed to a significant recovery in business investment following a weak end to 2024, with notable spending on aircraft, IT equipment, and machinery.
Paul Dales, chief UK economist at Capital Economics, told The Guardian, “That rise is completely at odds with the plunge in business confidence triggered by the large rises in national insurance contributions for employers and the minimum wage announced in October’s budget and the US tariff concerns this year.”
However, Dales also cautioned that a portion of this increased activity might be due to businesses bringing forward investments to preempt Trump’s tariffs, anticipating a more challenging period ahead.
Notably, UK export volumes increased by 3.5% after three consecutive quarterly declines, and overall international trade contributed 0.4 percentage points to GDP growth in the first quarter.
Government response and future outlook
Chancellor Reeves hailed the figures as evidence of the government’s effective economic plan.
“In the first three months of the year, the UK economy has grown faster than the US, Canada, France, Italy and Germany,” she stated.
Up against a backdrop of global uncertainty we are making the right choices now in the national interest.
Since the election we have already had four interest rate cuts, signed two trade deals, saved British Steel and given a pay rise to millions by increasing the minimum wage.
Nevertheless, the outlook for the coming months remains subdued.
Heightened uncertainty regarding the global economic landscape, particularly the impact of Trump’s tariff policies on business confidence and international trade, is expected to significantly dampen growth.
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