Official real gross domestic product (GDP) figures announced today for March and the first quarter of 2025 show that the economy grew 0.7% in the three months to March, and 0.2% in March itself.
The figures, which showed growth mainly because of strong performance in the services sector, came as a surprise to many economists.
Lale Akoner, global market analyst at investment group eToro, said the announcement offered “a rare dose of optimism”.
He added: “Services were strong, production bounced back, but any celebration should be brief. Data ends just before Donald Trump kicked off a fresh round of trade tensions in April, which means the real test is coming in Q2.”
Rates higher for longer
The good news on the economy may be bad news for borrowers, with the Bank of England less likely to cut interest rates if the economy is strong.
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Peter Stimson, head of product at mortgage lender MPowered, says the central bank “will [no] longer feel the need to rush into more base rate cuts to stimulate economic growth”.
“Instead, it will focus on managing inflation, which is expected to have jumped in April after increases to energy, water bills and National Insurance all kicked in.
“All this means the likelihood of the bank making a further base rate cut next month has all but disappeared,” he said.
Higher interest rates mean lenders will not rush to cut mortgage rates further, Stimson says, though that will mean good news for savers, who won’t see their savings rates fall as quickly.
While the bank is still forecast to cut rates two more times this year, this may take longer to feed through.
Akoner said: “The Bank of England, fresh off a rate cut to 4.25%, remains boxed in.
“Inflation is still sticky, wage growth is firm, and policymakers are signalling caution on further easing.”
Effects of ‘Awful April’
Alice Haine, personal finance analyst at DIY investment group Bestinvest, says inflation is set to tick up in April’s figures, thanks to the increase in many household bills that came in at this stage of the year, known as ‘Awful April’.
“Prices also came under pressure last month from the tax increases imposed on businesses by Reeves in her Autumn Statement last October,” she added.
“Employers not only had to absorb an increase in employee National Insurance rates but also a rise in business rates and the minimum wage, with many major businesses choosing to pass some of that cost on to consumers by hiking prices,” she said.
She added that in these uncertain times, consumers should focus on paying down expensive debts, building up a robust financial buffer and keeping CVs fresh to ensure they protect their finances.
