Britain’s economy expanded more rapidly than anticipated in the first quarter of 2025, marking the strongest development in a yr.
Based on the Office for National Statistics (ONS), gross domestic product (GDP) rose by 0.7 per cent between January and March, exceeding economists’ forecasts of 0.6 per cent.
This constructive begin to the yr has been welcomed by each economists and the Authorities.
Nonetheless, specialists warning that the financial panorama has shifted significantly because the first quarter, significantly with the introduction of recent US tariffs by Donald Trump in April.
The influence of those tariffs on subsequent financial efficiency stays to be seen.
Here’s a rundown of key phrases, why the financial system has grown so rapidly, and what’s more likely to occur subsequent.
What’s gross home product?
Gross home product, or GDP, is the time period sometimes used to explain the scale of a nation’s financial system.
It’s the measure of what’s going on financially throughout all firms, governments and households.
What drove development originally of 2025?
The UK’s providers sector was the most important driver of development, which picked up by 0.7 per cent over the quarter.
The wide-reaching business is a dominant a part of the UK financial system, spanning companies together with hospitality, leisure and tradition, finance and insurance coverage, and actual property and enterprise providers.
The ONS stated development in providers was “broad primarily based, with wholesale, retail and laptop programming all having a robust quarter as did automobile leasing and promoting”.
Manufacturing additionally “grew considerably” over the quarter, up 1.1 per cent, following a interval of decline. This incorporates sectors together with manufacturing, mining, and electrical energy provide.
Do the GDP figures imply the financial system is wholesome?
Consultants have stated it’s constructive that the financial system was in fine condition originally of the yr, and marks a rebound after being roughly flat all through the second half of 2024.
Chancellor Rachel Reeves stated the GDP figures “present the energy and potential of the UK financial system”.
“Up in opposition to a backdrop of worldwide uncertainty we’re making the appropriate selections now within the nationwide curiosity,” she stated.
Nonetheless, the most recent information covers the interval earlier than some vital adjustments to UK and world financial circumstances from April – specifically tax rises, and Donald Trump introducing new tariffs on US imports.
What impact will tax rises have?
The higher rate of employer national insurance, coupled with increases to the national living wage, have pushed up labour prices for a lot of companies since April.
Consultants stated this might result in companies pulling again spending or reducing workers, or passing on increased prices by means of worth rises.
Nonetheless, economists identified that the most recent ONS figures confirmed a burst of enterprise funding over the primary quarter – which jumped by 5.9 per cent, following a 1.9 per cent decline on the finish of 2024.
This implies that companies might not have been as fearful in regards to the April value rises as beforehand thought and signifies financial momentum heading right into a extra unsure interval.
What about tariffs?
James Smith, an economist for ING, steered there was proof of “front-loading” over the primary quarter – that means companies have been ramping up exports in anticipation of commerce demand falling sharply.
“Manufacturing was up by 0.8 per cent within the first three months of the yr, and we all know that transport tools – the most important export to the US – drove the majority of that development,” he stated.
It suggests that companies have been attempting to get forward earlier than US President Donald Trump launched a ten per cent levy on virtually all items getting into the US.
Since the president’s “liberation day” tariff announcements in April, issues have grow to be extra unsure for companies that commerce with the world’s greatest financial system.
The UK has since agreed a commerce settlement with the US which is able to relieve stress on sure sectors, however specialists assume the broader uncertainty has been dragging on companies and households’ willingness to spend cash.
Will the financial system continue to grow?
The Financial institution of England predicted last week that the UK economy will grow by 1 per cent this year, upgrading its earlier 0.75 per cent forecast on the again of a robust begin to 2025.
Nonetheless, it lower its development forecast to 1.25 per cent for 2026, from 1.5 per cent in its February projections, because of the influence of tariffs.
Economists assume financial development will gradual within the coming quarters, however that decrease rates of interest and better wages may present a tonic for shoppers.
Sanjay Raja, chief UK economist for Deutsche Financial institution, stated: “The soar in GDP will possible be short-lived, nevertheless.
“Commerce uncertainty will possible hit its peak within the second quarter of 2025. Exporters will possible see lowered demand as nicely from increased US tariffs and weaker world demand.”
Elliott Jordan-Doak, a senior UK economist for Pantheon Macroeconomics, stated {that a} “broader slowdown in world development” may very well be offset by “fading shopper warning and actual wage will increase” boosting UK employees.
