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UK Leads G7 with Strongest Economic Growth in Early 2025

Prime Highlights

  • The UK economy expanded 0.7% during Q1 2025, the leading economy in G7 countries in economic growth.
  • It was largely boosted by a surge in the services sector, driven by robust business and consumer expenditure.

Key Facts

  • The 0.7% growth of GDP was healthier compared to the Bank of England’s projection of 0.6%, representing a better-than-expected improvement in recovery.
  • Over 80% of the increase was due to services, led by administrative and support, retail trade, and telecommunications.

Key Background

In the first quarter of 2025, the United Kingdom was the G7‘s fastest-growing economy with 0.7% quarterly GDP growth. The UK surpassed Canada, Germany, France, and the United States’ growth and logged its strongest quarterly growth in over a year. The statistics, released by the Office for National Statistics, showed a strong economy basking in the current favor of numerous positive factors.

Expansion in most of it came from the services sector, which increased 0.7%. Chief contributors were administrative and support services, increasing 3.3%, and retail trade, increasing 1.6%. Information and communications services also expanded very strongly, by 1.9%. Expansion in these areas reflected improved consumer and business confidence. Professional and financial sectors were also robust, further cementing the service sector’s dominant role in the UK economy.

Manufacturing also contributed, up 1.1% with manufacturing output up 0.8%. Transport equipment and machinery drove a lot of the growth. The building industry was flat with no quarter-on-quarter increase, however.

On the expenditure side, increased household spending and business investment propelled the growth. Households led expenditure due to rising real wages and declining interest rates following recent Bank of England rate cuts. Furthermore, firms responded to investment stimulus presented by the government over the past year. Exporting was robust, especially in reaction to looming tariffs from major trading nations, and this prompted firms to export early.

While there is optimism, analysts predict potential headwinds. These include elevated business taxes, increased utility bills, and volatility in international trade. Additionally, initial signals such as mounting mortgage defaults and utility bill arrears reflect pressure on household budgets. The Bank of England is also cautious, estimating 1% aggregate growth in 2025, triggering the need for sustained policy support and responsible economic management.

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