UK Economy Sees Unexpected Growth Amid Tariff Concerns

The UK economy has exceeded expectations with a 0.7% growth in the January-to-March period, according to the Office for National Statistics. This growth beats economists’ forecasts of a 0.6% increase and is attributed to strong performance in the services sector.

UK Finance Minister Rachel Reeves stated that the figures “show the strength and potential of the UK economy,” while acknowledging that “there is more to do”. However, analysts caution that this growth might be short-lived due to impending tariffs. “This might be as good as it gets for the year,” said Capital Economics chief UK economist, Paul Dales.

Tariffs Threaten Progress
The growth spurt is “set to be short-lived as tariffs take effect,” according to Yael Selfin, chief economist at KPMG UK. Despite a UK-US trade agreement, tariffs on UK exports to the US remain significantly higher than pre-April levels. Selfin added that “the indirect impact of trade tensions between the US and the EU will further constrain demand for UK exports”.

Economic Outlook
The Bank of England recently cut its key interest rate to 4.25% and upgraded its 2025 GDP growth forecast to 1% from 0.75%. However, unemployment hit its highest level since 2021 in the first quarter. Economists predict that the UK economy will continue to grow, albeit at a sluggish pace, with forecasts ranging from 0.4% to 1.2% growth in the coming years.

Key Statistics

• GDP Growth Rate: 0.7% in Q1 2025, exceeding expectations
• Monthly GDP Growth: 0.2% in March, down from 0.5% in February
• Unemployment Rate: 4.4% in Q4 2024, highest since 2021
• Forecasted GDP Growth: 1% in 2025, according to the Bank of England