UK economy posts strongest growth in a year, driven by exports and business investment

The UK economy expanded at its fastest rate in over a year during the first quarter of 2025, as businesses ramped up investment and exports surged ahead of new US trade tariffs.

According to data from the Office for National Statistics (ONS), gross domestic product (GDP) rose by 0.7% between January and March, beating expectations from both the Bank of England and private sector forecasters, who had predicted 0.6%. The figure marks a significant acceleration from the 0.1% growth recorded in the final quarter of 2024.

Year-on-year, the economy is now 1.3% larger, representing the best quarterly performance since early 2024 and the fastest growth among G7 economies during the period.

The gains were led by a 0.7% rise in the services sector, which makes up around 75% of total UK output. Manufacturing and industrial production also contributed, with production output growing by 1.1% over the quarter. Construction remained flat.

The sharp uptick in business activity comes ahead of President Donald Trump’s April 2 tariff imposition on UK goods, which economists believe led to a front-loading of exports. The ONS reported a £2.4 billion rise in exports to the US during the first three months of the year — a clear sign, it said, of “changing trader behaviour ahead of tariff introduction”.

Total exports rose 3.5%, while business investment climbed nearly 6%, largely driven by orders for aircraft and transport components amid global trade uncertainty.

While government spending fell by 0.5%, particularly in health and education, modest consumer spending growth of 0.2% and a 0.9% rise in consumer-facing services helped offset the decline.

Chancellor Rachel Reeves celebrated the figures as a sign of post-pandemic recovery and international competitiveness, saying:

“Today’s growth figures show the strength and potential of the UK economy. In the first three months of the year, the UK economy has grown faster than the US, Canada, France, Italy and Germany.”

Despite the upbeat headline figures, economists have warned that the strong start to the year may not be sustained. The Bank of England has cautioned that underlying growth was likely closer to 0.1% for the quarter once temporary factors are stripped out.

Private sector surveys have already indicated that services output contracted in April, marking the first decline in two years, and several analysts expect a potential slowdown in Q2 due to trade frictions and the delayed impact of tax changes.

Bruna Skarica, economist at Morgan Stanley, flagged concerns about seasonal inconsistencies in the ONS’s GDP estimates: “The UK often shows strong early-year growth followed by sharp slowdowns, largely due to seasonal adjustment issues. We expect a contraction in the second quarter.”

Emma Reynolds, Treasury minister, struck a cautious tone, acknowledging on Times Radio that the figures pre-date the April rise in national insurance contributions for employers.

“We’re pleased the economy is making progress… but of course, we’ll have to wait for upcoming data to understand the full impact of recent policy changes.”

Still, with wages now outpacing inflation and interest rates gradually easing, the economy is on track to grow by around 1% in 2025, barring any major trade disruptions.

As global uncertainty lingers and tariff pressures mount, the challenge for the government will be sustaining momentum while navigating the complexities of post-Brexit trade, monetary policy, and fiscal reform.

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UK economy posts strongest growth in a year, driven by exports and business investment