Image Source: The Economic Times
The UK economy delivered a robust performance in the first quarter of 2025, with preliminary GDP rising 0.7% quarter-on-quarter-well above both the previous quarter’s 0.1% growth and the 0.6% forecast in a Reuters poll. This marks the strongest quarterly expansion since late 2021 and signals the country’s official exit from a technical recession, offering a much-needed boost to policymakers and households alike.
Q1 GDP Growth Beats Expectations:
UK GDP grew by 0.7% in Q1 2025, outpacing the 0.6% consensus estimate and sharply rebounding from just 0.1% growth in Q4 2024. This is the best quarterly performance since Q4 2021.
Recession Officially Over:
The strong Q1 result ends the technical recession that saw GDP contract in the second half of 2024. The Office for National Statistics (ONS) confirmed that the economy is now 0.7% larger than a year ago, exceeding all economists’ expectations.
Growth Drivers:
The rebound was broad-based, with notable strength in retail, public transport, haulage, and health sectors-helped by fewer public-sector strikes. Car manufacturing also performed well, partly offsetting continued weakness in construction.
Monthly Momentum:
On a monthly basis, GDP grew 0.4% in March, faster than the 0.1% predicted, reflecting ongoing momentum at the end of the quarter. Services, production, and construction all contributed positively, with production output up 1.5% in February and services up 0.3%.
Living Standards and Productivity:
GDP per head rose for the first time in two years, up 0.4% in Q1, but remains 0.7% lower than a year earlier. This highlights the ongoing squeeze on living standards and the UK’s struggle to boost productivity, with only Germany among G7 peers faring worse since the pandemic.
Political and Economic Reactions:
Prime Minister Rishi Sunak hailed the data, saying the economy has “turned a corner.” However, opposition leaders argued that most households have yet to feel meaningful improvement, as productivity and real wages remain under pressure.
Outlook:
Economists remain cautiously optimistic. KPMG and the Bank of England project GDP growth to pick up further through 2025, supported by real wage gains and government spending, though productivity challenges and global trade uncertainty persist.
Insight
The UK’s better-than-expected Q1 GDP figures signal a clear exit from recession and a return to growth, driven by resilient consumer activity and a rebound in key sectors. However, the improvement in headline numbers masks ongoing challenges: productivity growth is weak, living standards are still recovering, and the economy remains vulnerable to global shocks and domestic policy shifts. For now, the data provides a welcome reprieve for policymakers and markets, but sustained recovery will depend on deeper structural reforms and continued momentum in the months ahead.
Source: Economic Times, ONS, Bank of England, KPMG
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