The UK economy did better than many had anticipated in the first quarter with gross domestic product (GDP) growing 0.7% throughout the three-month period.
This was a welcome rise following no growth in the third quarter of 2024 and a small uptick of 0.1% at the final three months of the year.
Many market analysts were expecting much of the same for the beginning of this year as the UK economy felt the impact of Chancellor Rachel Reeve’s Autumn Budget, but this was not the case.
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Danni Hewson, head of financial analysis at AJ Bell, said: “There’s no question that the economy looks a whole lot more robust than many people had expected considering the gloom that permeated perception in the wake of last year’s Budget.
“Growth has been resilient and significant despite concerns about the impact of increased employment costs and uncertainty linked to Donald Trump’s tariffs. Whilst not quite matching last year’s first quarter, it has come in way above what had been expected.”
The UK economy started 2024 on a high with GDP growth of 0.9% before disappointing in the ensuing months. George Brown, senior economist at Schroders, said we could see this pattern repeat itself in the months ahead.
“It is encouraging to see the UK economy begin 2025 on a firm growth footing,” he said. “But growth in the years since the pandemic has followed a common pattern of strong starts that later fizzle out, pointing to seasonal adjustment issues. In any case, UK growth looks set to moderate later this year.”
The latest GDP figures do not take into account the impact of Donald Trump’s tariffs on UK imports that were announced in April. This could have a sizable effect on economic growth in the next round of figures.
Likewise, the tax changes announced in Reeves’ maiden Budget only took effect in April. Early signs that higher costs on employers were having a negative impact were visible on Tuesday when unemployment rose to 4.5%.
Isaac Stell, investment manager at Wealth Club, said these tax changes and the challenges to UK trade imposed by US tariffs are likely to weigh on economic growth this quarter.
“It could be easy to get carried away by today’s positive surprise, but the winds of tariff turmoil are yet to be fully appreciated in the figures,” he said.
“It was only a few days after the quarter end that the ‘Liberation Day’ tariffs were announced and the impact from the tariff induced storm will likely have pitched the economy onto a different path, at least in the short term.
“Navigating back to port is likely only to get harder in the coming months due to the higher living wage and national insurance rises that came into effect in April, coupled with the tariff turmoil, this could make for a bumpy economic ride for the rest of the year.”
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However, some of the economic woes following US tariffs may have already subsided, with Trump and Prime Minister Keir Starmer agreeing to reduced levies last week.
Morningstar’s chief equity analyst Michael Field reminded investors not to dismiss recent GDP growth, noting it was “not blow-out, but growth nonetheless”.
“Investors will be able to place a little more faith in the trajectory of growth in the UK now that a trade deal has been agreed with the US and the risk of exorbitant tariffs has been removed,” he added.
While external factors detracting from GDP growth such as tariffs are difficult for the government to control, Ayming associate director Benjamin Craig said the Treasury should take measures to stimulate growth domestically.
“Many of the Chancellor’s recently announced measures such as the pension fund reforms are smart and sensible, but unlocking investment is only the first step,” he said.
“It’s about targeting the right areas of our economy – such as STEM skills development and high growth sectors like green tech and manufacturing – that can boost productivity and efficiency.”
This story was written by our sister title, Portfolio Adviser
