UK economy grows at fastest quarterly rate in a year in boost for Reeves
The UK economy expanded at its quickest pace in a year during the first quarter of 2025, offering a significant boost to Chancellor Rachel Reeves, according to the latest official data.
Figures released by the Office for National Statistics (ONS) on Wednesday revealed that gross domestic product (GDP) grew by 0.7% between January and March, surpassing economists’ forecasts of 0.6%. This marks the strongest quarterly expansion since the opening three months of 2024, when the economy saw a 0.9% increase.
Chancellor Reeves welcomed the data, describing it as a clear sign of the resilience and untapped potential within the British economy. “Against a backdrop of global uncertainty, we are making the right choices in the national interest,” she said. However, she also cautioned that there remained “more to do”, acknowledging the looming challenges posed by recent tax hikes and the United States’ new tariffs on UK goods.
From april, UK companies saw an increase in national insurance contributions, a move which several economists have warned may compel businesses to curtail hiring or even cut jobs in the coming months. Meanwhile, US President Donald Trump’s recently announced “liberation day” tariffs have seen a sweeping 10% levy imposed on most British goods entering the world’s largest economy. This development is likely to deal a blow to UK exporters and has already contributed to an atmosphere of heightened uncertainty among businesses and consumers alike.
Despite these headwinds, the latest figures suggest that the economy has so far remained resilient, driven in large part by a robust services sector. Liz McKeown, ONS director of economic statistics, commented: “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.”
She added that growth in the services sector was “broad-based”, with wholesale, retail and computer programming businesses all enjoying a strong quarter. Car leasing and advertising also saw notable expansions, providing further evidence of recovery in key parts of the economy. These gains, however, were only slightly tempered by falls in education, telecommunications, and legal services.
The services sector as a whole grew by 0.7% over the quarter, matching the pace of the broader economy, with administrative and support service activities seeing an impressive 3.3% surge. Retail trade also performed well, registering a 1.4% increase compared to the final quarter of 2024. Meanwhile, sports and recreation activities experienced a seasonal boost, expanding by 5.8% in March as warmer weather prompted a rise in outdoor leisure spending.
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However, the headline growth figure masks some emerging signs of fragility. Economic momentum slowed to 0.2% in March, down from 0.5% in February, as factory output began to lose steam. Analysts noted that while the services sector remains the primary driver of growth, the manufacturing sector’s struggles are likely to weigh on future performance, particularly given the additional pressures from the US tariffs.
Looking ahead, economists remain cautious about the UK’s prospects. The impact of tax increases, ongoing geopolitical tensions, and rising borrowing costs are expected to pose significant challenges. There are also concerns that the tariffs imposed by the US could lead to a broader downturn in UK trade, exacerbating existing difficulties for exporters.
Nevertheless, the better-than-expected first-quarter performance has provided the government with some breathing space and bolstered confidence in its economic stewardship. Whether this momentum can be sustained, however, will depend heavily on the government’s ability to navigate the complex global economic environment and implement policies that support both businesses and households through the challenges to come.
