The UK economy has defied expectations, recording a 0.7% increase in GDP in the first quarter of 2025 – better than the forecast of 0.6%.
This surge places Britain ahead of economic heavyweights, including the United States, Canada, France, Italy, and Germany.
A key driver of this growth has been the service sector, which demonstrated resilience amid global economic uncertainty. Production also experienced a boost, further solidifying the UK’s standing as an economic force.
Chancellor Rachel Reeves was quick to praise the achievement, citing the government’s commitment to fostering stability and investment.
However, economists are watching closely as Britain navigates potential challenges ahead, particularly in light of the latest global trade tariffs imposed by Donald Trump in April.
These new restrictions could slow growth in the coming months, but for now, the economy is holding firm. However, the UK – U.S. tariff deal is likely to lessen the overall impact and present a further improvement in the second quarter.
With businesses continuing to adapt to shifting market conditions, the UK’s better-than-expected performance is a welcome sign.
In February 2025, UK government borrowing reached £10.7 billion, significantly exceeding the £6.5 billion forecast by the Office for Budget Responsibility (OBR)
This marks the fourth-highest borrowing figure for February since records began in 1993. The unexpected rise in borrowing has intensified pressure on Chancellor Rachel Reeves ahead of her upcoming Spring Statement.
The increase in borrowing is attributed to higher public sector spending, which totaled £93 billion for the month, driven by social benefits and investment expenditures.
Meanwhile, government receipts, primarily from taxes, rose to £87.7 billion but failed to offset the spending surge.
Over the financial year to date, borrowing has climbed to £132.2 billion, surpassing the OBR’s earlier projection of £127.5 billion for the entire fiscal year.
Economists warn that the higher-than-expected borrowing could challenge the Chancellor’s fiscal rules, which aim to reduce debt as a share of GDP by 2029/30.
With limited options, Reeves faces tough decisions, including potential spending cuts and tax adjustments, to maintain fiscal discipline.
The borrowing figures underscore the delicate balance between managing public finances and addressing economic pressures.
As the Spring Statement approaches, all eyes are on the Chancellor’s strategy to navigate these challenges while maintaining economic stability.
The Chancellor has allowed herself to be backed into a corner.
The UK government has announced a significant budget surplus for January 2025, marking a notable achievement in its fiscal management
The surplus, which is the difference between what the government spends and the tax it takes in, amounted to £15.4 billion. This figure represents the highest level for the month of January since records began over three decades ago.
However, despite this impressive surplus, the figure fell short of the Office for Budget Responsibility’s (OBR) forecast of £20.5 billion. The shortfall has increased pressure on Chancellor Rachel Reeves to meet her self-imposed fiscal rules.
The OBR, which monitors the government’s spending plans and performance, will release its latest outlook for the UK economy and public finances on 26 March 2025.
The surplus was driven by a surge in tax receipts, particularly from self-assessed taxes, which are typically higher in January compared to other months. However, the lower-than-expected tax receipts suggest underlying weaknesses in the UK economy.
The Office for National Statistics (ONS) reported that borrowing in the financial year to January 2025 was £118.2 billion, which is £11.6 billion more than at the same point last year.
The government now faces the challenge of balancing its fiscal rules with the need to support economic growth. Weak economic growth and higher borrowing costs have reduced the headroom available to the Chancellor, making it more difficult to meet her fiscal targets.
Economists have suggested that Reeves may need to consider raising taxes or cutting public spending to stay within her fiscal rules.
As the UK economy continues to navigate these challenges, the government’s ability to manage its finances effectively will be crucial in maintaining credibility with financial markets and ensuring long-term economic stability.
The upcoming Spring Forecast will be a critical moment for the UK Chancellor to outline her plans and address the fiscal challenges ahead
The U.K. logged a record £16.7 billion net budget surplus in January 2024, according to official figures released on Wednesday 21st February 2024
The Office for National Statistics noted that the country’s public finances usually run a surplus in January, unlike during other months, as receipts from annual self-assessment tax returns come in.
Combined self-assessment income and capital gains tax receipts totaled £33 billion in January, the ONS noted, down £1.8 billion from the same period of last year.
Total government tax receipts came in at a record £90.8 billion, up £2.9 billion compared to January 2023.
Government borrowing during the financial year spanning to the end of January 2024 was £96.6 billion, £3.1 billion lower than over the same 10-month period a year ago and £9.2 billion lower than the £105.8 billion previously forecast by the independent Office for Budget Responsibility.
The UK economy will grow much more slowly than expected in the next two years as inflation takes longer to fall, the Office for Budget Responsibility (OBR) says.
Are we locked in a never-ending austerity cycle?
Living standards are also not expected to return to pre-pandemic levels until 2027-28, the Office for Budget Responsibility (OBR) said. It comes as the chancellor announced tax cuts and a rise in benefits in his 2023 Autumn Statement.
The OBR publishes two sets of economic forecasts a year, which are used to independently predict or guess what may happen to government finances. These are based on its best guess calculations about and are subject to ‘change’.
It’s just a forecast – so should we take any notice?
According to the OBR, the UK will grow by 0.6% in 2023 – much better than previous predications last autumn, when it calculated the economy would fall into recession and shrink.
However, it slashed its growth outlook to 0.7% in 2024 and 1.4% in 2025 – down from a previous forecast of 1.8% and 2.5%.
The OBR warned that inflation – currently 4.6% – will only fall to 2.8% by the end of 2024, before reaching the Bank of England’s 2% target in 2025. Previously it forecast inflation would easily beat the target next year.
OBR & ONS data set
These gloomy predictions put the Government on a collision course with the Bank of England and Britain’s budget watchdog as they clash over whether or not the UK economy is on the up.
Spending plans outlined in the chancellor’s Autumn Statement represent ‘a very big fiscal risk’, according to the UK’s OBR.
Mr Richard Hughes, chair of the Office for Budget Responsibility (OBR), told MPs on the Treasury Select Committee that spending plans carried a level of ‘uncertainty’. He suggested that much of the promised spending is funded by projected savings rather than income already received.
Last week, the OBR slashed its forecast for UK economic growth.
In March, the OBR said it expected GDP – a measure of the size and health of a country’s economy – to grow by 1.8% in 2024 and 2.5% in 2025.
Predications cut
Those predictions have now been cut, with a new forecast suggesting the UK economy will grow by 0.7% in 2024 and 1.4% in 2025.
‘It is very difficult to assess the credibility of the government’s spending plans, because after March 2025 the government doesn’t have any spending plans,’ Mr Hughes said, as he and other members of the OBR faced questions on the Autumn Statement.
Tax by stealth
Even though the chancellor announced a cut to NI rates, he opted to leave NI and income tax thresholds untouched, meaning they remain frozen until 2028. By doing this, more workers will fall into the higher tax bracket thus creating larger than expected tax revenue for the treasury. And, as workers secure pay rises, they may end up paying more tax if they are dragged into that higher tax band.
Some 2.2 million more workers now pay the basic rate income tax of 20% compared with three years ago, according to official figures, while 1.6 million more people have found themselves in the 40% tax bracket in the same period.
Just a thought, wasn’t the former UK prime minister ousted because of unfunded projections or was that unfunded tax cuts?
Some of the main takeaways from the chancellor’s autumn statement November 2023
National Insurance rate cut from 12% to 10% from 6 January, affecting 27 million people.
The 75% business rates discount for retail, hospitality and leisure firms in England extended for another year.
Class 2 National Insurance – paid by self-employed people earning more than £12,570 – abolished from April.
Class 4 National Insurance for self-employed – paid on profits between £12,570 and £50,270 – cut from 9% to 8% from April.
Full tax break permitting companies to deduct spending on new machinery and equipment from profits – now made permanent.
Funding of £4.5bn to attract investment to strategic manufacturing sectors, including aerospace, green energy, aerospace, life sciences and zero-emission vehicles.
Some £500m over the next two years to fund artificial intelligence (AI) innovation centres.
New premium planning services for England, with faster decision times for major business applications and fee refunds when these are not met.
Defence spending to remain at 2% of national income – a Nato commitment.
Overseas aid spending kept at 0.5% of national income, below the official 0.7% target.
Reaffirms previous commitments made last autumn to provide £14.1bn for the NHS and adult social care in England, as well as an extra £2bn for schools, in both 2023‑24 and 2024-25.
Fuel duty remains 52.95p per litre for petrol and diesel, after the chancellor announced a 5p per litre cut for 12 months in March 2023
State pension payments to increase by 8.5% from April, in line with average earnings.
Claimants in England and Wales deemed able to work who refuse to seek employment to lose access to their benefits and extras like free prescriptions.
UK autumn statement – art illustration of office worker preparing data
Further £1.3bn to help people who have been unemployed for over a year.
National Living Wage – to increase from £10.42 to £11.44 an hour from April.
Funding of £1.3bn over the next five years to help people with health conditions find jobs.
OBR Stats
Independent Office for Budget Responsibility (OBR) expects the economy to grow by 0.6% this year and 0.7% next year, rising to 1.4% in 2025; then 1.9% in 2026; 2% in 2027 and 1.7% in 2028.
Living standards not expected to return to pre-pandemic levels until 2027-28.
Underlying debt forecast to be 91.6% of GDP next year; 92.7% in 2024-25; 93.2% in 2026-27; before declining to 92.8% in 2028-29.(One to watch)
OBR forecasts that inflation – the rate prices are rising – will fall to 2.8% by the end of 2024, before reaching the Bank of England’s 2% target rate in 2025.(One to watch)
The OBR says higher inflation means real value of departmental budgets will be £19bn lower by 2027/28 compared with March 2023 forecasts.
Borrowing forecast to fall from 4.5% of GDP in 2023-24; to 3% in 2024-25; 2.7% in 2025-26; 2.3% in 2026-27; 1.6% in 2027-28 and 1.1% in 2028-29.(One to watch)
