UK Economy Grows Faster Than Expected in Early 2025

UK Economy Grows Faster Than Expected in Early 2025

What Happened

The UK economy grew by 0.7% in the first quarter of the year, outpacing expectations and marking a stronger start to 2025 than analysts had predicted. The Office for National Statistics (ONS) reported that growth was primarily driven by a resilient services sector, alongside significant gains in industrial production.

The economy also expanded by 0.2% in March alone, defying forecasts of zero growth for the month. The figures suggest that the UK may be turning a corner after last year’s technical recession.

Chancellor Rachel Reeves hailed the figures as evidence of “the strength and potential of the UK economy,” pointing out that the UK outperformed the US, Canada, France, Italy and Germany during the same period.

But the news was tempered by warnings from the opposition. Shadow chancellor Mel Stride noted that both the Office for Budget Responsibility (OBR) and the International Monetary Fund (IMF) had recently downgraded their full-year growth forecasts for the UK. He also criticised the government’s decision to raise employers’ National Insurance contributions, branding it a “jobs tax”.

What’s Next

Despite the stronger-than-expected start to the year, economists remain cautious about the outlook. The OBR now expects slower growth in the second half of 2025 due to weak consumer demand, higher business taxes, and persistent inflationary pressures.

Reeves has insisted that her economic strategy will focus on stability, investment and long-term growth, pledging to create the conditions for “sustained recovery, not just a short-term bounce”.

She is also under pressure to clarify her next steps on public spending, with some analysts warning that recent growth figures mask underlying weaknesses, including sluggish productivity and a still-tight labour market.

Businesses are lobbying for relief from the new National Insurance rules, with some calling on the Treasury to reverse the hike or offer exemptions for smaller employers.

The government is also preparing for a potentially turbulent autumn budget, with limited fiscal headroom and growing demands for increased spending on public services. Reeves is expected to unveil her economic vision for the rest of the Parliament in a major speech later this month, setting out how she plans to maintain momentum without fuelling inflation.

For now, however, the positive Q1 growth figures provide Labour with an early economic win — and a talking point in what is expected to be a tightly contested political year.

Media Reaction

The Standard says the growth was faster than expected by most City forecasters who said higher Government spending, a rush by exporters to get ahead of new US tariffs and sunny weather boosting the high street may have all contributed to the spurt.

Daily Express reports the better-than-expected figures will bring some relief to the chancellor who has faced ‘months of scrutiny.’

Investing.com says Starmer and Reeves are trying to kickstart Britain’s sluggish economy via increased spending on infrastructure and other reforms that they hope will boost investment.