The UK economy grew more than anticipated in the first quarter of 2025, according to data released by the Office for National Statistics (ONS). Gross Domestic Product (GDP) rose by 0.7% between January and March, surpassing analyst forecasts of 0.6%.
This growth was primarily driven by a strong performance in the services sector, with notable contributions from production industries as well. The first quarter figures come just before two major changes took effect in April: new US import tariffs and a rise in UK employer National Insurance contributions.
Chancellor Rachel Reeves hailed the figures as a sign of “the strength and potential of the UK economy”, highlighting that the UK outpaced all other G7 nations—including the US, Canada, France, Italy, and Germany—during this period. However, many analysts have warned that this level of growth is unlikely to continue throughout the year.
What does this mean for our clients?
While the headline growth is positive, the broader outlook is more complex. Here’s what our clients—particularly SMEs and business owners—should be mindful of:
1. Short-Term Boost, Long-Term Uncertainty
Much of the growth may have been front-loaded. Businesses increased activity in anticipation of April’s changes, particularly the imposition of US tariffs. If your company is heavily involved in exports—especially to the US—this could mean a bump in Q1 followed by a slowdown.
2. Increased Employer Costs
April saw the introduction of higher employer National Insurance rates, described by some as a “jobs tax”. If you employ staff, this change directly impacts your payroll costs and could reduce available capital for investment or hiring.
3. Business Investment Trends
Despite uncertainties, the data revealed that business investment rose nearly 6% in the quarter. If you’re considering capital investment or expansion, now may be a strategic time to assess financing opportunities—especially before further economic headwinds potentially dampen growth.
4. Interest Rates and Consumer Spending
Interest rates are expected to fall further in 2025, which may improve disposable income for consumers and ease borrowing costs for businesses. This could support demand, especially in consumer-facing sectors.
5. Tariff Pressures and Global Trade
If your business trades internationally, especially with the US, be prepared for continued volatility. Some firms, like Nc’nean Whisky Distillery, have chosen to absorb tariffs to maintain pricing stability abroad. This strategy may not be viable for all businesses, so it’s important to revisit your pricing and supply chain strategies accordingly.
6. Decision-Making Caution
As illustrated by manufacturers like Exactaform, many businesses are adopting a “wait and see” approach. If your margins are tight, we advise careful financial forecasting and scenario planning before committing to major strategic shifts.
Looking Ahead
While the growth figures are encouraging, businesses should remain cautious. The combination of rising costs, international trade tensions, and political uncertainty could create challenges in the months ahead.
We recommend reviewing your financial position, cash flow, and tax planning strategies to ensure resilience in an uncertain environment. Our team is here to help assess the implications for your business and guide you through the decisions that matter most.
Disclaimer: This content is for general information only and does not constitute legal or financial advice. Always consult a professional for guidance tailored to your specific circumstances.