UK GDP grows 0.7% in unexpected piece of good news for embattled Rachel Reeves

Chancellor Rachel Reeves said the figures ‘show the strength and potential of the UK economy’ (Image: Getty)

The UK economy grew at the fastest rate in a year over the first quarter of 2025, providing an unexpected boost for Chancellor Rachel Reeves, new official figures show. Gross domestic product (GDP) increased by 0.7% between January and March, the Office for National Statistics said.

This means it came in ahead of economists’ expectations of 0.6% growth for the quarter. It was also the highest GDP rate since the first quarter of 2024, when the economy jumped by 0.9%. Ms Reeves said the figures “show the strength and potential of the UK economy”. She said: “Up against a backdrop of global uncertainty we are making the right choices now in the national interest.”

Shadow Chancellor Mel Stride claimed Labour had still left Britons ‘worse off’ (Image: Getty)

Prime Minister Sir Keir Starmer said the figures showed he was meeting his goal of having the highest growth in the G7 group of advanced economies.

“But I know the Tory cost-of-living crisis isn’t over – we will go further and faster to deliver for working people,” Sir Keir said.

Ms Reeves acknowledged that there was “more to do”, with the latest ONS figures covering the period before tax rises and US President Donald Trump‘s “liberation day” tariff announcements.

Company national insurance contributions increased from April, which some economists have said will force firms to cut jobs.

And the US has imposed a 10% blanket tariff on most UK goods entering the world’s biggest economy, which is expected to directly impact exporters and has led to heightened uncertainty affecting businesses and households.

The latest figures show that economic growth slowed to 0.2% in March, from 0.5% in February, as activity among UK factories began to slump.

Shadow chancellor Sir Mel Stride pointed out that both the Office for Budget Responsibility and the International Monetary Fund had downgraded short-term growth forecasts on the back of tariff uncertainty.

“Labour inherited the fastest-growing economy in the G7, but their decisions have put that progress at risk,” he said, adding that national insurance hikes – which he branded as “jobs tax” – were making people worse off.

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Liz McKeown, ONS director of economic statistics, said: “The economy grew strongly in the first quarter of the year, largely driven by services, though production also grew significantly, after a period of decline.

“Growth in services was broad based, with wholesale, retail and computer programming all having a strong quarter as did car leasing and advertising.

“These were only slightly offset by falls in education, telecoms and legal services.”

The services sector jumped by 0.7% over the quarter, compared with the last three months of 2024, with administrative and support service activities surging by 3.3%.

Rachel Reeves with Prime Minister Sir Keir Starmer (Image: Getty)

Retail trade increased by 1.4% over the quarter, while sports and recreation activities picked up by 5.8% in March as warmer weather swept across the UK.

Consumer-facing services rose by 0.9% in the first quarter, indicating relative strength among households ahead of a swathe of bills rising from April, including energy and water.

Elliott Jordan-Doak, senior UK economist for Pantheon Macroeconomics, said the first-quarter data shows “the economy holding up well heading into the trade war”, which is expected to “hurt growth in 2025 and 2026”.

He added: “The UK’s new trade deal with the US rules out the worst-case scenario for tariffs, at least for now.

“But we think the radical uncertainty unleashed by the trade war will persist, weighing on investment and consumer confidence.”

Main points:

• UK gross domestic product (GDP) is estimated to have grown by 0.7% in Quarter 1 (Jan to Mar) 2025, following growth of 0.1% in the previous quarter.

• In output terms, growth in Quarter 1 2025 was driven by an increase of 0.7% in the services sector, production also grew, by 1.1%, while the construction sector showed no growth.

• In expenditure terms, growth in the latest quarter was driven by increases in gross fixed capital formation, net trade and household consumption.

• Nominal GDP is estimated to have increased by 1.6% in Quarter 1 2025, mainly driven by an increase in compensation of employees.

• Real GDP per head is estimated to have grown by 0.5% in Quarter 1 2025, following two consecutive quarterly falls.