UK economy grew at fastest pace in a year in Q1 before expected slowdown

(Reuters) - Britain's economy grew at its fastest pace in a year in the first three months of 2025 as homebuyers rushed to beat a deadline on property purchases and manufacturers sped up output ahead of U.S. President Donald Trump's higher import tariffs.

In a bounce that is not expected to be maintained in the rest of 2025, output grew by 0.7%, confirming a preliminary estimate and the fastest quarterly pace since the first three months of 2024, the Office for National Statistics said.

Growth in March alone was revised up to 0.4% from a previous reading of 0.2%, the ONS said.

The jump in economic output in early 2025 contrasted with growth of just 0.1% in the fourth quarter of 2024 and data has already shown that gross domestic product fell by 0.3% in April from March although the drop was exacerbated by one-off factors.

The Bank of England has said it expects economic growth of about 0.25% in the second quarter of this year.

Finance minister Rachel Reeves is hoping for a pickup to reduce the pressure on her to raise taxes again later this year to remain on course to meet her budget targets.

Thomas Pugh, chief economist at audit firm RSM UK, said weak consumer spending and hiring figures in recent weeks were likely to be a one-off reaction to a tax increase on employers and Trump's tariffs, many of which have been suspended.

"Now that uncertainty has started to recede, consumer confidence is rebounding, and business surveys point to the worst of the labour market pain being behind us," Pugh said.

A survey published earlier on Monday showed confidence levels among British employers hit a fresh nine-year high as they became more optimistic about the outlook for the economy.

The BoE is expected to cut interest rates twice more over the remainder of 2025 which is likely to support household spending.

However, a renewed rise in energy prices in the event of further conflict in the Middle East could add to the strains on the already slow-growing economy.

Monday's data from the ONS showed household expenditure grew by 0.4% in the January-to-March period, revised up from an initial estimate of an increase of 0.2%, driven by housing and household goods and services as well as transport.

Britain's property market saw a sharp increase in activity in the run-up to the March 31 expiry of a tax break for some homebuyers.

Households dipped into their reserves to help fund their spending with the saving ratio falling for the first time in two years although at 10.9% it remained strong.

Manufacturing grew by 1.1% in the first quarter - ahead of the increase in U.S. import tariffs in April - compared with the last three months of 2024.

The ONS also said Britain's current account deficit grew to a bigger-than-expected 23.46 billion pounds in the January to March period from just over 21 billion pounds in the last three months of 2024.

($1 = 0.7285 pounds)

(Writing by William Schomberg; Editing by Sachin Ravikumar, Suban Abdullan ad Emelia Sithole-Matarise)