UK economy grows at fastest pace in a year

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The UK economy grew 0.7 per cent in the first quarter, the fastest pace in a year, in a boost to Labour ahead of the impact of US President Donald Trump’s tariffs.

Thursday’s GDP figure for the first three months of the year was above the 0.6 per cent forecast by economists in a Reuters poll and up from the 0.1 per cent expansion in the fourth quarter. 

The first quarter’s performance was powered by an increase in investment and a positive contribution from net trade, according to the Office for National Statistics. In March, the economy expanded 0.2 per cent compared with analysts’ forecast of no growth.

The Labour government says growth is its top priority, although its critics accuse it of slowing down the economy with measures such as an increase in employers’ national insurance contributions that took effect last month.

Welcoming the first quarter’s rebound, chancellor Rachel Reeves said: “Today’s growth figures show the strength and potential of the UK economy.”

Mel Stride, the shadow chancellor, hit out at the government’s tax increases and said that “both the OBR [Office for Budget Responsibility] and IMF have downgraded the UK’s growth [forecasts]”.

Economists cautioned that Thursday’s figures are based on data compiled before Trump’s April 2 announcement of tariffs on countries across the world, including 10 per cent duties on imports from the UK.

Many say the tariffs will hit global growth, even though Trump has scaled back many of them.

While Washington and London agreed a limited trade deal last week — lowering tariffs on UK car and steel exports to the US — the flat 10 per cent charge remains in place.

Simon Pittaway, senior economist at the Resolution Foundation, said that “this growth rebound is unlikely to last, with data for April looking far weaker, and huge tariff-shaped clouds hanging over the global economy”.

Economists also suggested that first-quarter growth was boosted as companies sought to get ahead of Trump’s tariffs.

Paul Dales, economist at the consultancy Capital Economics, said a 5.9 per cent increase in business investment in the period was “completely at odds with the plunge in business sentiment”.

Export volumes rose 3.5 per cent in the first three months of the year, snapping three straight quarterly declines, with exports to the US climbing.

The Bank of England has already warned that first-quarter growth is likely to be “significantly above” the UK’s underlying economic momentum, highlighting weak productivity and high borrowing costs. The central bank expects growth to slow to 0.1 per cent in the second quarter.

The UK GDP for the first quarter of this year compares with a 0.4 per cent expansion in the Eurozone during the period and a 0.1 per cent contraction in the US — figures that were distorted by a surge of imports.

The BoE cut rates by a quarter point to 4.25 per cent this month but governor Andrew Bailey stressed that the path of interest rates was not on “autopilot”, as officials assess the effect of the US tariffs.

Following the data release, the pound edged up 0.2 per cent against the dollar to $1.329.

Additional reporting by Sam Fleming