UK Economy Grows 0.7% in Q1 – Stronger Than Expected

Manufacturing and services drive solid economic rebound, giving the government a short-term boost

UK GDP Beats Expectations in Early 2025

The UK economy saw a stronger-than-expected start to 2025, with gross domestic product (GDP) rising by 0.7% in the first quarter, according to the Office for National Statistics (ONS).

This marks a significant improvement from the final quarter of 2024, when growth was a sluggish 0.1%. Analysts had forecast a 0.6% rise, making this result a modest but welcome surprise.

On an annual basis, GDP increased by 1.3% compared to Q1 last year, slightly down from the previous 1.5% year-on-year growth.

What’s Behind the Growth?

The rebound was largely driven by strong performance in manufacturing, services, and utilities:

• Production output rose by 1.1%, with notable gains in manufacturing and a 4% increase in water supply.
• The services sector, which makes up the largest portion of the UK economy, expanded by 0.7%.
• Growth was seen across several industries including wholesale, retail, car leasing, computer programming, and advertising.

The economy also grew by 0.2% in March, exceeding forecasts of no growth, following a 0.5% rise in February. These steady monthly gains suggest growing resilience, especially in the face of global uncertainty.

A Political Boost – But Caution Ahead

Chancellor Rachel Reeves welcomed the figures, noting that the UK grew faster than other major economies including the US, Germany, France, Italy, and Canada in the first quarter.

The growth comes at a politically useful time for the government, which has placed economic performance at the heart of its agenda.

However, the Bank of England has warned that some of the improvement may be temporary, with “erratic factors” like late-2024 manufacturing disruptions artificially lifting headline GDP in Q1.

Additionally, these figures don’t yet reflect the impact of US President Trump’s controversial “Liberation Day” tariffs, announced in early April. A trade deal agreed shortly after has since eased those concerns.

Headwinds for the Months Ahead

While the first quarter brought better-than-expected results, April could present new challenges. UK households and businesses are facing higher utility bills, council tax, and national insurance contributions. Employers also now face increased wage costs due to the national minimum wage rise.

Despite these pressures, above-inflation wage growth and increased consumer confidence could help support the economy through the spring.

Encouraging Start, But Fragile Outlook

The UK economy’s 0.7% growth in Q1 offers welcome momentum following a weak end to 2024. Strong performances in manufacturing and services have supported recovery, and the figures are a timely win for the government.

Yet, challenges remain as new costs weigh on consumers and businesses. Continued resilience will depend on domestic demand, global trade stability, and inflation trends.

For now, the UK’s economic recovery looks cautiously optimistic.

Sources: (SKY.com, Investing.com)