The UK economy grew faster than anticipated in the first three months of 2025, providing a positive boost to Chancellor Rachel Reeves. Official data from the Office for National Statistics (ONS) revealed that gross domestic product (GDP) increased by 0.7% between January and March. This is a significant rise compared to the 0.1% growth recorded in the last quarter of 2024.
The 0.7% growth surpassed economists’ forecasts. A Reuters poll had predicted a 0.6% increase, while the Bank of England had expected a similar figure. The data also showed an unexpected 0.2% rise in March alone, compared to flat growth in February that many experts had expected.
Following the release of the data, the British pound strengthened slightly against the US dollar.
Government Highlights UK’s Economic Strength
Chancellor Rachel Reeves praised the figures, saying, “Today’s growth figures show the strength and potential of the UK economy.” She added that in the first quarter of 2025, the UK economy grew faster than those of the US, Canada, France, Italy, and Germany.
Reeves and Prime Minister Keir Starmer are focusing on boosting the economy through increased infrastructure spending and reforms aimed at encouraging investment.
Future Growth Faces Headwinds
Despite the strong start to the year, the Bank of England warned that this growth is likely temporary. It projects that UK economic output will expand by just 1% in 2025 and will only modestly improve to 1.5% by 2027.
Two key factors threaten future growth. First, US trade tariffs imposed under former President Donald Trump’s policies are expected to slow global trade. Second, British businesses are grappling with a sharp rise in employment taxes and an increased minimum wage, both introduced by Chancellor Reeves in April.
Suren Thiru, head of economics at the Institute of Chartered Accountants in England and Wales (ICAEW), said the first quarter’s growth was likely a peak. “Some businesses rushed to complete orders before US tariffs took effect,” he explained. “Economic activity may slow sharply as taxes, tariffs, and global uncertainty increase.”
Consumer Spending and Sector Performance
British consumers have so far remained confident despite economic concerns. Recent data showed consumer spending increased between March and April, indicating resilience in household demand.
The ONS reported that the services sector was the main driver of growth in early 2025. Production also improved sharply after a previous decline, showing signs of recovery.
Business investment surged by 5.9% compared to the last quarter of 2024, marking the largest quarterly increase in two years.
Real GDP Per Capita Shows Positive Trend
A key measure of economic wellbeing, real GDP per capita, rose by 0.5% in the first quarter after two consecutive quarters of decline. This suggests that the average economic experience for individuals in the UK is improving.
The stronger-than-expected start to 2025 offers hope for the UK economy, but rising taxes, trade tensions, and global uncertainties present significant challenges ahead. Chancellor Reeves and the government face a critical task in sustaining growth amid these pressures.
