The faster than expected UK growth in the first three months of the year is welcome news for aLabourgovernment desperate to make good on its promise of kickstarting the economy.
Under siege from Nigel Farage’s Reform and under pressure from its own MPs over tax and spend, Labour will now point tothe 0.7% increase in GDP over the first quarteras evidence the hard yards are starting to pay off.
It follows two sickly quarters after Labour came to power last year, shouting about itsterrible economic inheritance. GDP growth was zero in July-September 2024, and only 0.1% in the final three months of the year.
TheOffice for National Statisticssaid the strongest impetus for growth in the first quarter of 2025 came from the services sector, where there was a 0.7% increase in output, although manufacturing also contributed positively. Construction, which Labour is relying on for 1.5m new homes, was flat.
It is tempting to see these relatively upbeat figures as a “before” picture – a snapshot of the UK economy before Donald Trump’s trade tariffs were announced on his “liberation day” at the start of last month. Indeed, some analysts are warning that businesses may have pulled activity forward into the first quarter to get ahead of the looming tariff blitz.
However, theUS-China dealearlier this week has made the trade picture markedly less scary. Even before that, the Bank of England estimated the impact on UK growth would be a manageable 0.3% over three years – while lower commodity prices would help to bear down on inflation.
Of course, Trump’s erratic approach means all that could change in a single press conference. But a world with 30% total US tariffs on China – and 10% on the UKafter negotiations with the White House– should be more manageable than one where the world’s two largest economic powers are effectively operating a trade embargo.
Meanwhile, Reeves’s controversial £25bn employer national insurance contributions (NICs) rise only came into force in April, after the data in Thursday’s release was collected. However, if the policy were going to lead to an abrupt wave of redundancies, it seems likely these would have started to show up more clearly already in surveys of the jobs market.
Recent labour market figuresdo show a marked slowdown, but one that was already well under way. The NICs change is likely to show up in some combination of weaker wage growth, higher prices and slower hiring in the coming months – but so far at least there is little sign that this is likely to tip into the employment crisis of whichsome business groups warned.
It is also worth recalling that Reeves’s planned public spending splurge for the coming year was expected to boost economic growth but does not yet appear to have shown up, so that is a potential source of upside ahead. Last Thursday’s interest rate cut should be another prop for demand.
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There are ample reasons to be wary about the growth picture for the coming months, with forward-looking surveys of business and consumer confidence pointing in the wrong direction.
But looking at the latest GDP data after a bruising month or two,Rachel Reevescan rightly allow herself a few moments of optimism.