Britain’s economy grew more than expected in the first quarter, official data showed Thursday, covering the period before business tax hikes and US President Donald Trump’s tariffs blitz took effect.
The UK’s gross domestic product (GDP) grew by 0.7% between January and March, according to a statement from the Office for National Statistics (ONS). This marks a stronger performance compared to the slight growth recorded in the final quarter of last year and surpasses economists’ forecasts of a 0.6% rise.
The figures offer a welcome boost to Prime Minister Keir Starmer and his Labour government, which has faced challenges reviving the economy since taking office in July.
Chancellor Rachel Reeves responded positively to the data, stating that it reflects “the strength and potential of the UK economy,” while also acknowledging that “more work lies ahead.”
However, economists warned that the surge in growth may be temporary.
The ONS figures cover the period before the April implementation of a business tax increase outlined in Labour’s first budget last October. They also precede the introduction of a 10% baseline tariff imposed by former U.S. President Donald Trump on the UK and other nations last month.
“This may be the peak for the year,” said Paul Dales, Chief UK Economist at Capital Economics.
Short-lived momentum
KPMG UK’s Chief Economist Yael Selfin echoed the caution, predicting that the recent growth spurt is “likely to be short-lived as tariffs begin to take effect.”
While a new UK-US trade deal was announced last week, cutting tariffs on British cars and lifting those on steel and aluminium, the baseline 10% tariff remains in place. In exchange, the UK agreed to open its market to U.S. agricultural products such as beef.
Despite the agreement, Selfin pointed out that “tariffs on UK exports to the U.S. are still significantly higher than they were before April.” She also noted that “ongoing trade tensions between the U.S. and EU could further dampen demand for UK exports.”
ONS Director of Economic Statistics Liz McKeown said the first-quarter growth was mainly driven by the services sector, with a notable rebound in production after previous declines.
Economists attributed the rise in manufacturing to companies accelerating output ahead of the new U.S. tariffs.
Trade data released the same day showed UK goods exports to the U.S. rising for the fourth straight month in March. According to the ONS, “This trend may reflect traders adjusting their behaviour in anticipation of tariff changes.”
Still, economists at Pantheon Macroeconomics warned that “any temporary support to manufacturing from pre-tariff stockpiling is likely to fade, pointing to weak activity ahead.”
Monthly GDP figures showed a 0.2% increase in March, following a 0.5% rise in February.
The release comes shortly after the Bank of England reduced its key interest rate by 25 basis points to 4.25%, citing concerns over the economic impact of U.S. tariffs. The Bank also revised its GDP growth forecast for 2025 upward from 0.75% to 1%, but lowered the outlook for 2026 from 1.5% to 1.25%.
Meanwhile, new data published Tuesday revealed that unemployment in the UK reached its highest level since 2021 in the first quarter.
