UK economy surges in Q1 2025 outperforming peers

[EUROPE] Britain’s economy delivered an unexpected boost in March, pushing first-quarter output to its fastest pace in a year, according to official figures released today — a development likely to be welcomed by Chancellor Rachel Reeves.

The Office for National Statistics (ONS) reported a 0.2% rise in gross domestic product (GDP) in March compared to February. This modest but stronger-than-anticipated increase outpaced economists' expectations, who had largely predicted no growth for the month, according to a Reuters poll.

The surprise uptick was partly fuelled by renewed consumer confidence, driven by easing inflation and steady employment levels. Retail and hospitality businesses reported solid performance, helping to underpin the rise. Analysts say that gradually improving real wages also played a key role in sustaining household demand.

“Between January and March, GDP grew by 0.7%,” the ONS said — exceeding the 0.6% forecast by both Reuters analysts and the Bank of England.

Growth was largely powered by the services sector, the ONS noted, though industrial production also made notable gains after a period of stagnation. Business investment saw a strong pickup, reflecting improved sentiment among firms.

Of particular significance, manufacturing output recorded its first quarterly growth in over a year, expanding by 0.5% amid easing supply chain disruptions and a pickup in export demand. Key contributors included the automotive and pharmaceutical sectors, pointing to a potential rebound in the UK’s industrial base. However, economists warned that lingering global trade tensions could pose a risk to continued momentum in this area.

“These growth figures demonstrate the strength and potential of the UK economy,” Reeves said in a statement. “In the first quarter of the year, the UK has grown faster than the US, Canada, France, Italy, and Germany,” she added.

Despite the comparative outperformance, experts caution that underlying structural issues remain. Productivity growth continues to fall short of pre-pandemic levels, and regional disparities persist, with much of the expansion concentrated in London and the Southeast. The government has pledged major infrastructure investment to help bridge these gaps, though the benefits may take time to emerge.

Reeves and Prime Minister Keir Starmer are seeking to reinvigorate the economy through a programme of increased infrastructure spending and economic reform, aimed at unlocking long-term investment.

However, the Bank of England has sounded a note of caution, projecting that the first-quarter strength may prove short-lived. It forecasts GDP growth of just 1% for 2025, with only a modest rise to 1.5% by 2027.

That subdued outlook reflects concerns over global uncertainties, including geopolitical instability and volatile energy prices. While business investment has shown improvement, lingering doubts over future tax and regulatory frameworks could temper corporate spending over the longer term. The Bank has underscored the need for both private-sector confidence and continued government support to maintain growth.

External risks are also looming. Trade tariffs imposed by U.S. President Donald Trump are expected to dampen global economic activity, while British businesses have warned that planned increases in employment taxes and the minimum wage — part of Reeves’ fiscal agenda — could add further cost pressures.

Nonetheless, UK consumers appear largely resilient for now. Data released this week shows that household spending rose across both March and April, suggesting confidence remains intact despite the uncertain outlook.