In the first three months of 2025, the UK economy expanded more than anticipated at its fastest pace in a year. The Office for National Statistics (ONS), Newport Whales, said that the GDP grew by 0.7% between January and March, higher than the 0.6% that some economists predicted.
Although the government and economists applauded early-year data showing economic improvement, analysts have noted a drastic shift in the situation. This change followed Donald Trump's imposition of new US tariffs in April.
What is the gross domestic product?
The phrase gross domestic product, or GDP, is commonly used to characterize the magnitude of a country's economy. It is a gauge of the financial health of all businesses, governments, and families.
What fueled expansion at the start of 2025?
The UK's services sector contributed the most significant growth share, increasing by 0.7% during the quarter. The broad industry—including real estate, business services, entertainment and culture, finance, and insurance—is a major contributor to the UK economy.
According to the ONS, service growth was "broad-based," with strong quarters in computer programming, wholesale, and retail. Car leasing and advertising also performed well.
After a period of decline, products likewise grew significantly during the quarter, increasing by 1.1%. This includes industries like mining, manufacturing, and power generation.
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Does the GDP indicate that the economy is doing well?
After essentially stagnating throughout the second half of 2024, experts say it is encouraging that the economy performed well at the start of the year. They view this as a sign of recovery.
Chancellor Rachel Reeves said the "GDP numbers show the strength and potential of the UK economy."
"We are making the right decision for the country's interest despite the uncertainty in the world," she stated.
The most recent data, however, covers the time frame before some notable shifts in the UK and the global economy in April, including the tax increase Trump's imposition of new tariffs on US imports.
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How would tax increases affect things?
Since April, labour costs have increased for many businesses due to the higher employer national insurance rate and hikes in the national living wage.
However, analysts noted that the most recent ONS data revealed a 5.9% increase in corporate investment during the first quarter, following a 1.9% drop at the end of 2024.
This indicates that economic momentum is entering a more uncertain phase. It also suggests that businesses may not have been as concerned about the April cost increases as initially thought.
Tariffs, what about them?
According to ING economist James Smith, there was evidence of front-loading over the first quarter, which means companies increased exports in preparation for a steep decline in trade demand.
"We know that transportation equipment, the main export to the United States, drove the majority of that growth," he said, adding that manufacturing had increased by 0.8% in the first three months of the year.
It implies that before US President Donald Trump imposed a 10% tax on nearly all items entering the US, companies were attempting to make headway. Although the UK and the US have reached a trade agreement to ease pressure on specific industries, analysts believe uncertainty remains. This general uncertainty affects individuals' deterred businesses and businesses' willingness to spend money.
Will the economy continue to expand?
On the strength of its 2025 start, the Bank of England upgraded its prior projection of 0.75% to predict that the UK economy will grow by 1% this year. However, because of the impact of tariffs, it reduced its growth prediction for 2026 from 1.5% in February to 1.25%.
Economists expect economic growth to decelerate in the upcoming quarters, although consumers may benefit from lower borrowing rates and rising earnings. According to Elliott Jordan-Doak, a senior UK economist at Pantheon Macroeconomics, "fading consumer caution and real wage increases" that benefit UK workers could counteract a "broader slowdown in global growth."