Jamie Spencer
Britain’s economy grew more strongly than expected in early 2025, giving a boost to the government and finance minister Rachel Reeves. However, she faces tougher challenges ahead due to her tax hike on businesses and Donald Trump’s trade wars.
Economic Growth Surpasses Expectations
Between January and March, the economy accelerated to show growth of 0.7%, up sharply from an increase of 0.1% in the last three months of 2024, according to official data released on Thursday. This was above the 0.6% growth forecast in a Reuters poll of economists and the expectation set by the Bank of England.
Unexpected Growth in March
In March alone, the economy grew unexpectedly, expanding by 0.2% from February, the Office for National Statistics reported. The Reuters poll had anticipated a flat reading of 0.0%. Sterling edged up against the U.S. dollar after the data was announced, reflecting investor optimism.
Challenges Loom Despite Positive Data
Despite the strong performance, Reeves faces criticism from business leaders and opposition parties for her decision to increase social security contributions, which took effect in April. However, she emphasized that the data shows the economy’s strength and its potential. “In the first three months of the year, the UK economy has grown faster than the U.S., Canada, France, Italy, and Germany,” Reeves stated.
Government’s Strategy for Growth
Reeves and Prime Minister Keir Starmer are attempting to stimulate the economy through increased spending on infrastructure and other reforms aimed at boosting investment. However, the Bank of England (BoE) has warned that the strong growth in the January-to-March period may be temporary. The BoE expects a growth rate of 1% for 2025, with a slight acceleration to 1.5% by 2027.
Impact of Trump’s Tariffs
Trump’s trade tariffs are expected to slow the global economy, and British businesses have expressed concerns about the rising employment taxes and the minimum wage increases introduced by Reeves, which took effect in April. Suren Thiru, economics director at ICAEW, noted that the first-quarter growth spurt might prove temporary as businesses rushed to meet orders before U.S. tariffs took effect. “This robust quarterly reading is probably the pinnacle for economic growth this year,” Thiru said, forecasting a sharp slowdown as tax and tariff increases weigh on activity.
Positive Signs Amid Global Uncertainty
Last week’s new trade deal with the U.S. could limit the blow to Britain’s economy. Under the deal, the U.S. will reduce higher tariffs on steel and aluminium but will continue to impose a new 10% tariff on most British goods. Despite global uncertainty, British consumers have remained largely unfazed. Data published this week showed a rise in consumer spending during March and April.
Services and Investment Drive Growth
Growth in the first quarter of 2025 was largely driven by the services sector, although production also grew significantly after a period of decline. Business investment grew strongly, expanding by 5.9% from the last quarter of 2024, marking the biggest increase in two years. Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, noted that some of the jump in business investment reflected a significant increase in aircraft imports, which are counted as investment.
GDP Per Head Improves
Real GDP per head, which provides a better sense of how economic growth is being felt by individuals, grew by 0.5%, following two consecutive quarterly declines, according to the ONS. While challenges remain, the positive growth data suggests that the UK economy is navigating a turbulent global environment with resilience.
