UK GDP Growth Exceeds Forecast at 0.7% in First Quarter

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The United Kingdom’s economy delivered a stronger-than-expected performance in the first quarter of 2025, expanding by 0.7% — its fastest pace in nearly two years. The figures, released by the Office for National Statistics (ONS), exceeded economists’ expectations of 0.4% growth, signaling that the UK may be on a firmer path to recovery after a period of sluggish expansion and persistent inflation.

This marked rebound in GDP follows two consecutive quarters of contraction, technically lifting the UK out of a shallow recession. The robust growth was underpinned by a resurgence in the services sector, a rebound in retail activity, and improving business confidence across key industries.

Services — which account for more than 70% of the UK economy — were the primary driver of growth, expanding by 0.8%. Consumer-facing sectors such as hospitality, entertainment, and professional services posted strong gains, bolstered by higher real wages and easing inflationary pressures. Retail trade in particular saw renewed momentum as household spending rebounded.

Manufacturing also contributed positively, expanding for the first time in four quarters, helped by a stabilization in energy prices and stronger export demand. Construction, however, remained relatively flat, reflecting lingering uncertainty in the housing market and subdued investment activity.

The Bank of England is likely to take note of the better-than-expected GDP figures as it weighs its next move on interest rates. While inflation has steadily eased from its peak, it remains above the Bank’s 2% target, prompting policymakers to strike a delicate balance between supporting growth and curbing price pressures. Analysts now suggest that the stronger growth outlook may delay expectations for a rate cut until later in the year.

Despite global headwinds, including geopolitical tensions and slower demand from China and the eurozone, the UK economy appears to be gaining momentum. The Q1 performance adds to a growing narrative of resilience, with markets responding positively to the data. The pound edged higher following the release, while equities in London saw a modest uptick as investor sentiment improved.

Looking ahead, economists will be watching closely to see whether the growth trajectory is sustainable in the coming quarters, particularly amid continued uncertainty surrounding fiscal policy and upcoming general elections.

 

 

 

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