UK economy grows strongest in a year driven by exports and commercial investment
The UK economy grew at its fastest pace in the first quarter of 2025 as business investments intensified and exporters soared ahead of new U.S. trade tariffs.
GDP rose 0.7% between January and March, surpassing expectations from the Bank of England and private sector forecasters, who forecast 0.6%. The figure marks a significant acceleration in the 0.1% growth recorded in the last quarter of 2024.
Year-on-year, the economy is now growing 1.3%, its best quarterly performance since the beginning of 2024, and the G7 economy has grown the fastest during that period.
Revenue grew at 0.7% of the service sector, accounting for 75% of the UK's total production. Manufacturing and industrial production also contributed, with output rising 1.1% in the quarter. The building remains flat.
The sharp rise in business activity comes ahead of Donald Trump's April 2 tariff collection on British goods, which economists believe led to the front of exports. ONS reports that U.S. exports to the U.S. increased by £2.4 billion in the first three months of the year, a clear sign of “changing trader behavior before tariff introductions”.
Total exports grew 3.5%, while commercial investment climbed nearly 6%, largely driven by orders for aircraft and transport components of global trade uncertainty.
Despite a 0.5% decline in government spending, especially in health and education, consumer spending grew at 0.2% and a 0.9% increase in consumer-oriented services helped offset the decline.
Prime Minister Rachel Reeves celebrates the numbers as a sign of post-pandemic recovery and international competitiveness, he said:
“Today's growth data show the strength and potential of the UK economy. In the first three months of the year, the UK economy grew faster than the United States, Canada, France, Italy and Germany.”
Despite optimistic title numbers, economists warn that a strong start to the year may not last. The Bank of England warned that the basic growth in the quarter could be close to 0.1% once temporary factors are deprived.
Private sector surveys have shown that April’s service output marked the first decline in two years, with several analysts expecting a potential slowdown in the second quarter due to delays in trade frictions and tax changes.
Bruna Skarica, an economist at Morgan Stanley, expressed concerns about seasonal inconsistencies in ONS's GDP estimates: “The UK often shows strong early growth, followed by a sharp decline, largely due to seasonal adjustment issues. We expect a contraction in the second quarter.”
Finance Minister Emma Reynolds put forward a cautious tone, acknowledged on Times radio that the figures predated April’s National Insurance contributions increased employers.
“We are glad that the economy has made progress…but, of course, we have to wait for the upcoming data to see the full impact of recent policy changes.”
Nevertheless, as wages now exceed inflation and interest rates gradually lower, the economy is expected to grow about 1% in 2025, prohibiting any major trade disruptions.
As global uncertainty persists and tariff pressures continue, the challenges facing governments will maintain momentum while navigating the complexities of post-Brexit trade, monetary policy and fiscal reforms.
