The UK economy showed steady momentum in the first quarter of 2025, with real GDP rising by 0.7 percent, confirming earlier estimates. Year-over-year growth stood at 1.3 percent, suggesting a moderate recovery compared to 2024. Sectorally, services remained the main engine, expanding by 0.7 percent, while production saw a robust 1.3 percent uptick. The construction sector also edged forward, though modestly at 0.3 percent.

On the expenditure side, increased business investment (gross fixed capital formation), stronger net trade performance, and resilient household consumption contributed positively to overall growth. Meanwhile, GDP per head rose slightly by 0.6 percent, indicating that economic growth is slowly translating to individual prosperity.

However, household finances appeared strained. Real household disposable income per head declined by 1.0 percent, reversing gains seen in the previous quarter. This income squeeze, coupled with a notable drop in non-pension savings, saw the household saving ratio fall by 1.1 percentage points to 10.9 percent.

While the output data paints a picture of growing economic activity, the fall in disposable income and savings suggests that households are beginning to feel the squeeze, raising questions about the sustainability of consumer-driven growth in the coming quarters. These latest updates bring the RPI to 21 and RPI-P to 32, indicating that economic activities are outpacing market expectations in the UK.

No revision expected in the final look at Q1 with growth of 0.7 percent on the quarter and 1.3 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.)