Boost for Rachel Reeves as UK economy booms in first quarter
The UK economy surged by 0.7 per cent in the first three months of the year, official data has shown, suggesting firms boosted production ahead of Rachel Reeves’s tax rises in April and the threat of President Donald Trump’s tariffs.
Fresh data provided by the Office for National Statistics showed that the UK economy grew 0.2 per cent in March, compared to a 0.5 per cent spike in GDP the month before, which drove the large quarterly rise.
A Bloomberg poll of economists said that GDP would remain unchanged in March, but the ONS revealed that the UK economy inched up slightly.
Rachel Reeves’s growth mission
Chancellor Rachel Reeves has made delivering growth “further and faster” a central mission, with reforms to pension investments, energy and planning rules seen as key to boosting output.
New GDP figures for the first three months of the year suggest firms have ramped up production for two months running ahead of tax rises coming into effect in April and President Trump’s looming tariff threats.
Brits may have also benefitted as GDP per capita increased by 0.5 per cent following months of stagnation and decline.
Liz McKeown, director of economic statistics at the ONS, said growth in services, retail and computer programming all had a “strong quarter” along with car leasing and advertising.
“The economy grew strongly in the first quarter of the year, largely driven by services through production also grew significantly, after a period of decline,” McKeown said.
Rachel Reeves said: “Today’s growth figures show the strength and potential of the UK economy.
“In the first three months of the year, the UK economy has grown faster than the US, Canada, France, Italy and Germany.
“Up against a backdrop of global uncertainty we are making the right choices now in the national interest. Since the election we have already had four interest rate cuts, signed two trade deals, saved British Steel and given a pay rise to millions by increasing the minimum wage.”
It has been suggested by some economists and investors that a rise in production of 1.1 per cent at the beginning of the year reflects firms’ fears about the impact of President Trump’s tariffs.
“It could be argued that growth in the first quarter was ‘made in America’ after the spectre of tariffs pre-‘Liberation Day’ encouraged some inventory stocking of UK made goods,” said Scott Gardner, investment strategist at JP Morgan.
Capital Economics’ Paul Dales said: “As it appears to have been driven by large rises in aircraft, IT equipment and machinery equipment, all of which are areas that Trump has targeted with tariffs, it’s probably the case that businesses spent to get ahead of US tariffs imposed in mid-March and at the start of April.”
The sudden surge in the UK economy at the beginning of this year is expected to wind back to near-stagnant growth in the coming months after Rachel Reeves’s tax hikes.
UK economy to stagnate
The Office for Budget Responsibility (OBR), the fiscal watchdog, believes UK growth will come in at one per cent this year.
Economists at the Bank of England revised their economic outlook to come in line with the OBR’s projection but interest rate-setters described a spike in growth for the first quarter as “erratic” due to greater manufacturing output.
Minutes from the Bank’s last interest rates meeting said underlying GDP growth, which would otherwise be genuine growth seen across UK sectors, is likely to be closer to zero. The impact of Rachel Reeves’s tax hikes is yet to be felt.
The International Monetary Fund (IMF) has taken a marginally more positive view on the UK economy as it said GDP would rise by 1.1 per cent in 2025, though this forecast represented a cut from its previous projection of 1.6 per cent growth.
Shadow Chancellor Mel Stride blamed Labour’s economic policies for downgrades and said “only the Conservatives” believed in low tax and less regulation.
Snap predictions are generally being treated with slight caution given President Trump’s flip-flopping over tariffs and the lack of information surrounding government policies including the upcoming industrial strategy, changes to worker rights in the Employment Rights Bill and the recently-published immigration white paper.
The UK secured a deal with the US, which will see tariffs on steel cut to zero per cent and those on car exports come down from 25 per cent to ten per cent for a quota of 100,000 units, providing a much-needed lift to markets after a bumpy month in April.
China has also negotiated a temporary lowering of US tariffs on its exports from 145 per cent to 30 per cent in signs that the trade war is cooling.
Bank of England Governor Andrew Bailey has urged the government to secure more trade deals, with the UK expected to announce new arrangements with its closest trading partner, the European Union, as soon as next Monday when a summit is due to be held.
Deals may help to relieve some of the pains of global instability, but most economists believe the expected slump in global demand from higher trade barriers will weigh on the UK economy and could force Rachel Reeves to make more cuts later in the year.
George Brown, senior economist at Schroders, said growth looks set to “moderate later this year” while the Confederation of British Industry’s Ben Jones said the strength seen in the first quarter was set to be a “one-off”.