UK economy outpaces gloomy forecasts, yet caution remains

The UK economy experienced stronger-than-anticipated growth in the first quarter of 2025, with GDP expanding by 0.7% between January and March, according to official figures released this morning by the Office for National Statistics (ONS).

This performance surpasses earlier forecasts and indicates a more robust start to the year than many analysts had expected. The growth was primarily driven by a rebound in consumer spending and a notable uptick in business investment, particularly in the services and manufacturing sectors.

The latest figures starkly contrast with the warnings issued by business leaders earlier this year, who cautioned that Reeves’s autumn budget — particularly the planned £25bn increase in employer national insurance contributions starting in April — could push the economy into a recession.

The stronger GDP growth may influence the Bank of England's approach to interest rates. While the Bank recently reduced rates by 0.25 percentage points to 4.25% to support economic growth amid global trade tensions, the robust Q1 performance could lead policymakers to adopt a more cautious stance on further rate cuts.

However, this momentum may not be sustained in the coming months as rising inflation, a cooling labour market, and the recent imposition of U.S. tariffs could pose challenges to continued economic expansion.

Overall, the better-than-expected GDP growth has provided a positive signal to markets, but the reaction remains cautious due to underlying economic uncertainties and external risks. The FTSE 100 saw a modest uptick as the data was released, reflecting the optimism over the UK economy, but the ongoing concerns over the global trade tensions and the impact on global growth have limited the upside.

The daily chart shows a loss of bullish momentum in recent weeks as resistance takes over around 8,600. The RSI has failed to come into close contact with the overbought level (70) despite the recent appreciation, suggesting a weakened bullish drive. The moving averages show mixed signals, with the 50-day having dropped below the 100-day line, whilst the 20-day is set to move above both. They are likely to provide some support if further downside arises as they cluster around 8,490, whilst the upside is likely to continue offering resistance, with key levels between 8,684 and 8,909.

FTSE 100 daily chart

Past performance is not a reliable indicator of future results.