Boost for UK economy as GDP rises 0.7% – what it means for YOUR money
THE UK economy grew in the third month of this year - more than expected.
The Office for National Statistics (ONS) said Gross Domestic Product (GDP) went up by 0.7% in the quarter to March.
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This was stronger than the 0.6% that analysts had forecast.
It comes after GDP went up by 0.1% in the previous quarter.
The figures defied gloomy warnings after the fallout from US President Donald Trump's tariffs.
Experts had cautioned that imposing huge tariffs on UK sectors including car and steel manufacture could put a dampener on the economy.
Economists have said that growth later in the year is likely to be much weaker than in the first quarter due to Trump's erratic tariff plans.
But a 0.7% increase in growth in the services sector in the first three months of the year has helped to keep the economy stable.
Production also grew, by 1.1%, while the construction sector showed no growth.
Monthly GDP is estimated to have grown by 0.2% in March because of growth in the services and construction sectors.
This was also better than the rate of zero growth that had been forecast.
The figures followed an unrevised increase of 0.5% in February and no growth in January.
Liz McKeown, director of economic statistics at the ONS, said: "The economy grew strongly in the first quarter of the year, largely driven by services, though production also grew significantly, after a period of decline.
"Growth in services was broad based, with wholesale, retail and computer programming all having a strong quarter as did car leasing and advertising.
"These were only slightly offset by falls in education, telecoms and legal services."
GDP is one of the main indicators used to measure how well an economy is performing.
By JACK ELSOM, Chief Political Correspondent
AFTER a gruelling few months, there is finally some light relief for Rachel Reeves.
The Chancellor hurtled out of the traps this morning to trumpet higher-than-expected economic growth.
A 0.7% increase to GDP over the last three months might not sound like much, but it is an improvement on the pathetic 0.1% across her first six months in the job.
“Today's growth figures show the strength and potential of the UK economy,” she said this morning.
Yet - even for a Chancellor known to enjoy a crack-of-dawn park run - a victory lap would be daftly premature.
For a start, these growth figures are from the period before Donald Trump ripped up the world economic order by unleashing a volley of tariffs.
Even our first-of-its-kind trade deal with the United States will not entirely insulate Britain from the global shocks sent from Washington.
And controversial decisions still loom: today’s growth will not be enough to avoid public sector cuts at next month’s spending review.
Any whiff of Austerity 2.0 will enrage Labour MPs, who are already toying with rebellion following the cuts to winter fuel and benefits.
But failing to wield the axe on some government departments could force Ms Reeves to raise taxes yet again to stay within her “non-negotiable” fiscal rules”.
As the Chancellor beams to the cameras to welcome today’s stats, behind the smile she will know there are tough choices ahead.
When it goes up, it means the economy is doing well, when it falls it means the economy has shrunk.
It's worth bearing in mind that the GDP figures published by the ONS today are estimates and may be revised up or down in the future.
Commenting on the figures, Chancellor Rachel Reeves said they showed the Government was “making the right choices” but said “there is more to do”.
She said: “Today’s growth figures show the strength and potential of the UK economy.
“In the first three months of the year, the UK economy has grown faster than the US, Canada, France, Italy and Germany.
“Up against a backdrop of global uncertainty we are making the right choices now in the national interest.
“Since the election we have already had four interest rate cuts, signed two trade deals, saved British Steel and given a pay rise to millions by increasing the minimum wage.
“Our plan for change is working. But I know there is more to do and that is why I’m determined we go further and faster to make working people better off.”
But shadow chancellor Mel Stride warns that both the Office for Budget Responsibility and the International Monetary Fund have downgraded the UK's growth forecast for this year.
GDP measures the economic output of companies, individuals and Governments.
If it is rising steadily, but not too much, it's a sign of a healthy economy.
This is because it usually means people are spending more, the Government earns more tax and workers get better pay rises.
It also usually means lower inflation as companies don't have to hike their prices to cover shortfalls in their coffers.
The Bank of England (BoE) also uses GDP and inflation as key indicators when setting its base rate.
The base rate decides how much the BoE will charge banks to lend them money.
It is also a way that the BoE can help to control inflation.
Usually, when inflation is low, the BoE cuts interest rates to try to speed the economy up.
Rate-setters on the BoE's Monetary Policy Committee last week cut the base rate from 4.5% to 4.25%.
This was the fourth interest rate cut since 2020.
The decision will result in lower mortgage payments for homeowners but it could mean reduced rates for savers.
Markets are currently pricing in three more cuts this year - which would take the base rate to 3.5% by the end of 2025.
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank's rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country's GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially - the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises - consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower - but their bills could drastically increase when it's time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
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