The UK economy picked up pace in the first quarter of 2025, with GDP expanding by 0.7 percent, a notable acceleration from the modest 0.1 percent growth in the previous quarter. Over the year, the UK GDP grew by 1.3 percent, a slight drop from the year-over-year growth of 1.5 percent in the fourth quarter of 2024. The latest GDP growth was driven by broad-based sectoral improvements, led by the services sector, which grew by 0.7 percent, and a robust 1.1 percent rise in production output. In contrast, the construction sector remained flat, reflecting stagnation in building activity despite broader economic gains.

From an expenditure perspective, the economy was fuelled by increased household spending, higher gross fixed capital formation, and stronger net trade performancepointing to renewed confidence among consumers and investors. Encouragingly, nominal GDP rose by 1.6 percent, buoyed by a rise in employee compensation, signalling a rebound in earnings and potential improvements in living standards.

Importantly, real GDP per head grew by 0.5 percent, marking a turnaround after two consecutive quarters of decline and suggesting that economic growth is beginning to translate into individual gains. In essence, the first quarter of 2025 offers a positive outlook, with solid foundations laid for a more sustained and inclusive recovery. This update takes the RPI to 22 and the RPI-P to 22, meaning that economic activities continue to stay well ahead of market expectations in the UK.

Manufacturing expected to lead respectable 0.6 percent growth in Q1. The consensus sees GDP up 1.1 percent on year.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Since 2018, the first, or provisional, estimate includes the GDP expenditure components as well as data on the main output sectors. These results are updated in the second, and final, report.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth. For example, if the UK reports that the consumer price index has risen more than the Bank of England's 2 percent inflation target, demand for sterling could decline. Similarly, when the Bank of England lowers interest rates, the pound sterling weakens. (Currency traders also watch the interest rate spread between countries.)