GDP beats expectations with 0.7% rise, but wealth managers eye global trade and fiscal drag
The UK economy delivered a welcome upside surprise in the first quarter of 2025, expanding by 0.7% according to the latest ONS figures – following growth of 0.1% in the previous quarter. The result comfortably outpaced forecasts and put the UK ahead of major global peers, including the US, Germany, and France. For wealth managers and investors, the data offer a rare note of optimism — but few believe this momentum is sustainable.
The headline figures mask a complex backdrop of structural vulnerabilities, looming policy headwinds, and geopolitical uncertainty. With Donald Trump’s new US tariffs only taking effect in April and increases to employer National Insurance and minimum wages also just starting to bite in the UK, the Q1 data reflects an economy still on the calmer side of the storm.
A better-than-expected start, but already looking dated
Commenting on the figures, AJ Bell’s Danni Hewson said the performance was “significantly more resilient” than many had expected following last year’s downbeat Budget. “The service sector has been the engine, supported by a post-Christmas spending bounce and wage growth outpacing inflation,” she noted.
Yet for investment professionals, the backward-looking nature of the data is critical. “The real prize was the uplift in business investment,” Hewson added, “but much of that was likely pulled forward to avoid tariff-related costs.”
Charles Stanley’s Rob Morgan was more pointed in his assessment. “March’s 0.2% growth figure rounds out a solid quarter, but there’s little reason to expect a repeat. The brighter picture is likely flattered by a dash for exports and front-loaded business activity.”
Global trade tensions add new layer of risk
While a UK-US trade deal was secured just ahead of the US tariff hikes, the broader international context remains fragile. “The UK economy is still highly exposed to global developments,” warned George Brown, Senior Economist at Schroders. “Any slowdown across major trading partners, particularly the US, China, and Europe, will feed through rapidly into our open economy.”
Morgan agreed, pointing to the temporary nature of some global tariff relief. “The US-China tariff détente may prove short-lived. Investors should be cautious — global trade friction could easily re-intensify.”
Raymond James strategist Jeremy Batstone-Carr also flagged the likely short-term nature of the Q1 trade boost. “There’s a strong chance that much of the export contribution will unwind in Q2. From a policy perspective, these numbers won’t shift the dial for the Bank of England, whose cautious stance remains justified.”
Sector insights: construction lags, services lead
While consumer-facing services drove much of the quarter’s growth — buoyed by higher wages and warmer weather — other key sectors present a more mixed picture. Construction output has yet to pick up significantly, despite falling interest rates and political rhetoric around housebuilding.
7IM’s Ben Kumar was blunt: “If we want sustained growth, construction needs to fire. It’s the sector with the biggest multiplier effects — and it’s still underperforming. That’s within the government’s control, but there’s no evidence yet that it’s turning around.”
Investors should prepare for more volatility
Wealth managers are also closely watching the policy landscape. Susannah Streeter of Hargreaves Lansdown noted that while business investment surged in Q1, “the picture for Q2 could be far more restrained” given higher employment costs and lingering trade uncertainty.
George Lagarias of Forvis Mazars cautioned that “data may become less reliable in the months ahead,” with policymakers like the Bank of England potentially forced to act more on instinct than evidence. “That increases the risk of policy missteps — something investors need to factor into their allocations.”
Environment remains highly uncertain
While the Q1 growth numbers may lift sentiment and potentially support UK-focused equities in the near term, most analysts agree they are not indicative of a new trend.
YOU Asset Management CEO Derrick Dunne put it plainly: “This data is a welcome relief for the Treasury, but it doesn’t change the forward-looking reality. Higher taxes, tighter margins, and global trade tensions will define the rest of the year.”
For wealth managers, the key takeaway is clear: while the UK has shown resilience, the environment remains uncertain. Portfolio positioning should continue to balance optimism with prudence — favouring quality assets, diversified income streams, and a readiness to adjust as the full impact of April’s economic and policy shocks becomes clearer.
