Financial News: UK Economy Expands Most In A Year

UK Economy Expands Most In A Year

(RTTNews) - The U.K. became the fastest growing economy in the G7 league as the country logged the biggest economic expansion in a year in the first quarter that exceeded expectations, thanks to a shift in trade activity ahead of the imposition of higher tariffs by the U.S. Gross domestic product expanded 0.7 percent sequentially, following a 0.1 percent growth in the previous quarter, the first estimate from the Office for National Statistics showed on Thursday.

GDP was forecast to advance 0.6 percent. The latest growth was the strongest since the first quarter of 2024. In output terms, data showed that the growth was driven by an increase of 0.7 percent in the service sector. Industrial production grew 1.1 percent, within which manufacturing gained 0.8 percent, while construction output showed nil growth.

On the expenditure-side, there were increases in gross fixed capital formation, net trade and household consumption.

Household spending rose 0.2 percent driven by higher spending on goods and services. Meanwhile, government consumption fell 0.5 percent due to lower expenditure on health and education.

Gross fixed capital formation showed a 2.9 percent growth mainly driven by a large increase in transport, especially increased aircraft imports. Within gross fixed capital formation, business investment surged 5.9 percent from a quarter ago.

In the first quarter, exports to the United States increased GBP 2.4 billion as demand spiked as American traders tried to avoid higher trade tariffs. With the fourth consecutive growth, total exports rose to the highest level since the fourth quarter of 2022.

"As this release covers trade up to March 2025, there will be no direct impact of tariffs on this data," the ONS said. "However, this pattern of increasing exports could be a sign of changing trader behaviour ahead of tariff introduction," the ONS added.

ING economist James Smith said the strong start to 2025 suggests annual GDP growth should come in a touch above 1 percent this year, even if we start to see a repeat of the past few years, where momentum has faltered through the summer and autumn.

The bumper 0.7 percent quarterly growth in GDP in the first quarter is unlikely to be repeated as a lot of it was due to a leap in business investment that looks out of whack with the plunge in business confidence and some of it was due to activity being brought forward ahead of US tariffs, Capital Economics' economist Paul Dales said.

The first quarter is probably as good as it gets for the year, the economist added.

On a yearly basis, real GDP expanded 1.3 percent in the first quarter compared to economists' forecast of 1.2 percent.

In March, GDP climbed 0.2 percent but slower than the 0.5 percent growth logged in February.

Industrial production shrank 0.7 percent, reversing February's 1.7 percent increase. Likewise, manufacturing output fell 0.8 percent after rising 2.4 percent a month ago.

Another report from the ONS showed that the visible trade deficit narrowed to GBP 19.9 bln from GBP 20.9 billion in February. The expected level was GBP 19.7 billion.

Including goods and services trade, the total trade balance showed a deficit of GBP 3.69 billion compared to a GBP 4.86 billion shortfall in February.

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