UK economy grows at fastest pace in a year

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The UK economy grew 0.7 per cent in the first quarter, the fastest pace in a year, in a boost to Labour ahead of the impact of US President Donald Trump’s tariffs.

Thursday’s GDP figure for the first three months of the year was above the 0.6 per cent forecast by economists in a Reuters poll and up from the 0.1 per cent expansion in the fourth quarter. 

The first quarter’s performance was powered by the services sector and an increase in investment, according to the Office for National Statistics. Net trade also made a positive contribution, suggesting activity was brought forward in anticipation of higher tariffs.

The Labour government says growth is its top priority, although its critics accuse it of slowing down the economy with measures such as an increase in employers’ national insurance contributions that took effect last month.

Welcoming the first-quarter expansion that outpaced several other G7 economies, chancellor Rachel Reeves said the figures showed “the strength and potential of the UK economy”.

Mel Stride, the shadow chancellor, hit out at the government’s tax increases and said that “both the OBR [Office for Budget Responsibility] and IMF have downgraded the UK’s growth [forecasts]”.

Economists cautioned that Thursday’s figures are based on data compiled before Trump’s April 2 announcement of tariffs on countries across the world, including 10 per cent duties on imports from the UK.

Many say the tariffs will hit global growth, even though Trump has scaled back many of them.

While Washington and London agreed a limited trade deal last week — lowering tariffs on UK car and steel exports to the US — the flat 10 per cent charge remains in place.

Simon Pittaway, senior economist at the Resolution Foundation, said that “this growth rebound is unlikely to last, with data for April looking far weaker, and huge tariff-shaped clouds hanging over the global economy”.

The ONS figures showed the economy grew 0.2 per cent in March compared with analysts’ forecast of no growth.

Economists suggested that first-quarter growth was boosted as companies sought to get ahead of Trump’s tariffs.

Paul Dales, economist at the consultancy Capital Economics, said a 5.9 per cent increase in business investment in the period was “completely at odds with the plunge in business sentiment”.

Export volumes rose 3.5 per cent in the first three months of the year, snapping three straight quarterly declines, with exports to the US climbing.

The Bank of England has already warned that first-quarter growth is likely to be “significantly above” the UK’s underlying economic momentum, highlighting weak productivity and high borrowing costs. The central bank expects growth to slow to 0.1 per cent in the second quarter.

UK GDP for the first quarter of this year compares with a 0.4 per cent expansion in the Eurozone during the period and a 0.1 per cent contraction in the US — figures that were distorted by a surge of imports.

GDP per capita, which matters for living standards, rose 0.5 per cent, returning to growth after contracting in the second half of 2024.

The BoE cut rates by a quarter point to 4.25 per cent this month but governor Andrew Bailey stressed that the path of interest rates was not on “autopilot”, as officials assess the effect of the US tariffs.

Traders expect one or two more interest rate cuts from the BoE this year, according to the swaps markets, little changed from before the release of the GDP figures. The pound was marginally higher against the dollar at $1.327.

Additional reporting by Sam Fleming and Ian Smith