Economy grew by 0.2% in March – industry reaction

Latest Office for National Statistics (ONS) data has shown that UK GDP grew 0.2% month-on-month in March, following a 0.5% rise in February meaning that GDP expanded by 0.7% in the first quarter of the year.

The increase marks a significant improvement on the 0.1% growth recorded in the closing quarter of 2024 and exceeds the 0.6% growth .

Commenting on the data, Anna Leach, Chief Economist at the Institute of Directors, said “The first quarter of 2025 saw the strongest growth in a year with the expansion reassuringly broad-based growth driven by 10 of the 14 subsectors in services and 10 of 13 subsectors in manufacturing. Some of the prevailing trends reported to the ONS nonetheless suggest some one-off factors supporting the economy in March: new car registrations and housing market activity ahead of the April rise in stamp duty were noted to the ONS by respondents to the surveys. And we are reminded of the turbulence to come in April elsewhere in the data: gold and precious metal prices are also noted to have spurred activity – these are items which have benefitted from search-for-safety flows as investors look to insulate themselves from US risks. All in all, it is no bad thing that the UK seems to have entered the April turmoil in good economic shape.”

“UK growth seems unlikely to maintain its Q1 strength over the rest of this year. Tariff turmoil and its impacts on consumer and investment spending will push down on activity in coming months as it delays decision-making and increases the desire for precautionary saving buffers. While consumer spending should continue to be supported by real earnings growth and further falls in interest rates, the labour market is softening rapidly amidst significant increases in employment costs. The sharp rise in uncertainty pushes down further on investment appetite among businesses already seeing profits pressured by rising costs. But amidst the noise, there are a number of notable policies expected from the UK government in the coming weeks: industrial strategy and the 10 year infrastructure plan provide opportunities to cut through and enable businesses to see a sense of direction for the UK economy.”

Policy Chair of the Federation of Small Businesses (FSB), Tina McKenzie, said “While today’s figures are a tentative step in the right direction, this is still far from sustainable economic growth and certainly no cause for complacency.

“With official figures this week estimating the number of payrolled employees down more than 100,000 over the last year, there are clear signs that the increased costs and risks of giving someone a job are having an impact – threatening to snuff out these first flickers of growth. The Government must improve the parts of its Employment Rights Bill which risk killing job opportunities. Without changes, putting people off hiring will be a significant barrier to growth – and will cause many small employers to freeze their growth ambitions or even downsize.

“Our latest quarterly Small Business Index, covering the three months to the end of March, found only eight per cent of small businesses had increased staff numbers over the quarter, while more than double that – 21 per cent – had to reduce their workforce.

“Today’s GDP figures should also be seen in the context that they cover the period just before tax rises kicked in at the start of the new financial year. It was also a period in which there were signs of small exporters pulling forward activity ahead of the threat of tariffs on exports to the USA. There should be no let-up in the quest for sustainable growth, and policy barriers which risk blocking it should be removed.”

Mike Randall, CEO at Simply Asset Finance said  “Stronger than expected GDP growth in the first quarter reflects what we’ve seen on the ground – businesses have remained active and confident in the face of ongoing economic pressure.

“But this is just the starting point. The challenge now is to build on that momentum and move decisively towards sustainable, long-term growth. Many businesses have already adjusted to the new cost realities and are ready to push ahead – but they need the right conditions to do so.

“The Government’s long-awaited industrial strategy must play a central role in unlocking this next phase. SMEs are the driving force of the UK economy – with policy execution, access to capital and targeted infrastructure investment, they can fuel the growth the country urgently needs.”

Ben Jones, Lead Economist, CBI, said “The rise in activity in March was a pleasant surprise, coming on the back of the strong bounce in February. While the latest data adds to signs that a gradual recovery in household spending may be underway, the strength of GDP over Q1 is likely to prove a one-off.

“An up-tick in inflation and a cooling labour market will see real household income growth slow this year, though lower interest rates should encourage consumers to save less and spend more.

“Businesses remain cautious over hiring and investment plans given the steep rise in employment costs following the Autumn Budget. And the uncertain global economic backdrop is hardly conducive for long-term planning.

“Now is a critical time for government to hardwire growth into the economy through the upcoming Spending Review. Measures to accelerate tech adoption alongside a modern Industrial Strategy can support the UK’s investment and growth potential and bolster the UK’s competitive position.”

Suren Thiru, ICAEW Economics Director said “These figures point to a resurgent first quarter for the UK economy, even though declining manufacturing production helped cause growth to moderate in March.

“The notably positive first quarter is more likely a reflection of temporary factors, such as some businesses bringing forward activity ahead of the original US tariffs taking effect, than the economic reality on the ground.

“This robust quarterly reading is probably the pinnacle for economic growth this year, with activity likely to slow sharply going forward as tax and tariff rises and global uncertainty bite, despite potential boosts from government and consumer spending.

“The upbeat first quarter GDP data may delay the next UK interest rate cut by giving those policymakers still fretting over inflation enough reassurance over economic conditions to put off authorising another policy loosening.”