The UK economy achieved its strongest quarterly growth in a year, and the future prospects are still uncertain

The Zhitong Finance App learned that before being hit by both tax increases and the US trade war, the UK economy achieved the strongest quarterly growth in a year. The UK Office for National Statistics announced on Thursday that the UK's gross domestic product (GDP) grew by 0.7% in the first quarter, which is faster than the 0.1% growth rate at the end of 2024, and higher than the 0.6% expected by the Bank of England and private sector economists.

The service sector boosts the UK economy

In March alone, UK output grew by 0.2%, rather than the stagnation predicted by economists. This shows that British businesses and consumers are still resilient until a sharp tax increase hits employers and US President Trump is about to announce the imposition of global tariffs. Strong growth in both the services and construction sectors offset the sharp decline in manufacturing.

The pound rose 0.2% against the US dollar to 1.3289 after the release of better-than-expected data. The money market slightly lowered its bet on the Bank of England's interest rate cut, and it is expected to cut interest rates by another 40 basis points by the end of this year.

Accelerated economic growth is good news for the British Labour government. Since coming to power last summer, the Labor Party has been working hard to advance the economy. In the first three months of 2025, per capita GDP (a key measure of living standards) increased by 0.5%, rebounding after two consecutive quarters of decline.

Economists, however, urge caution. Strong growth in the first quarter was supported by strong growth in February as factories increased production in an attempt to increase exports to the US before Trump tariffs came into effect.

The Bank of England predicts that economic growth will slow to 0.1% in the second quarter, and “there is a downside risk”. The central bank believes that fundamentals are still stagnating.

The Bank of England expects a sharp economic slowdown this quarter

In April, British consumers were also hit by rising utility bills and local taxes, which put more pressure on the bar and other restaurant businesses.

The Bank of England said in its new forecast last week that the economic growth rate will remain around 1% in 2025 and will pick up slightly next year.

Suren Thiru, head of economics at the Institute of Chartered Accountants of England and Wales, said: “This strong quarterly data may be the peak of economic growth this year, and future economic activity may slow sharply due to rising taxes and tariffs and the impact of global uncertainty.”