Chancellor boosted by 0.7% GDP rise, but advisers urged to prepare for tougher quarters ahead
Financial advisers welcomed a rare dose of good economic news this week as the Office for National Statistics (ONS) reported that UK GDP grew by 0.7% in the first quarter of 2025. The figure outpaced analyst forecasts and marked a sharp acceleration from the previous quarter’s 0.1% expansion. Compared to other G7 nations, the UK outperformed the US, Canada, France, Italy, and Germany over the period.
But experts were quick to urge caution. Much of the growth appears to have been driven by pre-emptive activity ahead of tariff hikes and fiscal headwinds that only began to bite in April. Advisers are being warned that Q1’s buoyancy may not persist through the rest of the year.
Better than expected – but not the full picture
Danni Hewson, head of financial analysis at AJ Bell, noted the economy was “a whole lot more robust than many had expected,” pointing to consumer resilience and a strong services sector. “Big-ticket items were back on the menu,” she said, highlighting the surge in vehicle sales and renewed business investment.
However, she warned: “These figures are backwards-looking… fissures have already formed.” She flagged employer National Insurance hikes and the impact of Donald Trump’s “Liberation Day” tariffs as threats still to materialise in official data.
Strong start may not last
Several commentators emphasised the front-loading of trade and production activity ahead of the US tariffs. Rob Morgan, Chief Investment Analyst at Charles Stanley, said: “Like the current run of fine weather, the sunnier outlook for the UK economy may not be set to last.”
He pointed out that while the services and production sectors had driven Q1 growth, construction had been less buoyant, and the picture was unlikely to remain so bright in the coming months. “Domestic pressures in the form of increased employer NICs and minimum wage hikes could increasingly weigh on business activity,” Morgan added.
George Brown, Senior Economist at Schroders, echoed that sentiment: “UK growth looks set to moderate later this year… This will put further pressure on the public finances, potentially requiring the Chancellor to opt for spending cuts or tax hikes.”
Trade boost likely short-lived
The UK’s trade deal with the US, struck ahead of the tariff implementation, provided a short-term fillip to exporters. Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services, said the positive contribution from trade would likely not be repeated. “Front-loading US export activity certainly helped… but is unlikely to persist into Q2 and beyond.”
Others, including George Lagarias of Forvis Mazars, warned of a volatile global environment, with the US-China tariff situation still in flux. “The American trade war is causing global macroeconomic volatility… this will be especially challenging for data-dependent policymakers like the Bank of England.”
Construction remains key to sustained recovery
Ben Kumar of 7IM offered a more direct take: “Ignore the comparisons with other G7 nations… What’s needed to supercharge growth is the construction sector to get going. We’re definitely not there yet.”
While Labour’s housebuilding plans and falling interest rates could eventually stimulate construction, Kumar noted that private commercial building was falling sharply.
Consumer confidence helps – for now
Despite the policy headwinds, consumer-facing sectors held up well. Hargreaves Lansdown’s Susannah Streeter pointed to a 0.9% rise in output for consumer services in Q1. Warm spring weather and rising real wages helped retail and hospitality, but Streeter warned that higher payroll costs would likely hit businesses hard in Q2.
YOU Asset Management’s Derrick Dunne summed up the prevailing mood: “These growth figures come as a significant upside surprise… But they are unfortunately no indicator of better days ahead.”
Bumpy road ahead
For financial advisers, these Q1 data offer an encouraging – if temporary – reprieve from the steady drumbeat of economic pessimism. But most analysts agree: the second quarter is likely to paint a less flattering picture.
With key sectors still under pressure and the full impact of US tariffs and fiscal tightening yet to land, advisers should continue to prepare clients for a potentially bumpy road ahead. The strength in services and consumption shows resilience, but long-term growth will depend on deeper structural drivers – particularly in construction and investment – that are yet to gather momentum.
