GDP largest economy: The UK economy's growth is great news for Labour and Scotland - but there's a catch

The UK economy figures showing a rise in GDP in the first three months of 2025 were published Thursday morning.

The UK economy grew in the first three months of this year by more than expected, in a major boost for Labour.

Gross domestic product (GDP) increased by 0.7 per cent between January and March, the Office for National Statistics (ONS) has announced, and at the fastest rate in a year.

Chancellor Rachel Reeves trying whisky during a visit to the Glenkinchie Whisky Distillery in Tranent

Labour has been quick to argue the growth figures show their choices have been working, leaving them on track to meet the target of being the fastest growing economy in the G7. Speaking on Thursday morning in Derby, Chancellor Rachel Reeves admitted the cost of living was still too high, but the UK government was creating “opportunities”, and would make “working people” better off.

The Prime Minister predictably agreed, and made the point that as well as improved growth, there had also been four interest rate cuts in a row, with wages rising faster than prices.

On the surface, this is great news for Labour. The economy is stronger and they can argue with some merit the plan for the economy is working, and they are going to improve the lives of citizens.

For Scottish Labour, it’s a much-needed boost in the face of dire polls, and allows the party’s leader Anas Sarwar to argue “things can only get better” from here on in.

The party can also point to the trade deal with India, something that could deliver “transformative” improvements to business, according to the Scotch Whisky Association, as well as the new US-UK trade deal. It appears the storm has passed.

However, the timing of the forecasts means it’s not that simple and, while positive, there are far more issues ahead.

For one, the new GDP figures do not account for the hike in National Insurance contributions for employers, nor the increase to the living wage. Both of these will have increased labor costs for some businesses, which could lead to higher prices or cuts to staff.

The Prime Minister welcome the news during a visit to Albania | Leon Neal/PA Wire

Then there are the tariffs, whose impact was not yet felt in the figures. ING economist James Smith argued there was evidence of “front-loading” over the first quarter, meaning businesses were ramping up exports in anticipation of trade demand falling sharply.

While manufacturing increased in this period, Mr Smith suggested that it meant businesses were trying to get ahead before US President Donald Trump introduced a 10 per cent levy on almost all goods entering the US. This has created wider uncertainty and, while a trade deal has been agreed, it’s still considerably worse than what came before.

As to whether a corner has been turned and Labour’s plan is working, the answer is yes, albeit in the short term.

Last week the Bank of England predicted the UK economy would grow by 1 per cent this year, upgrading its previous forecast of 0.75 per cent. However, it also slashed its growth forecast to 1.25 per cent for 2026, from 1.5 per cent in its February projections, as a result of the impact of tariffs.

Sanjay Raja, chief UK economist for Deutsche Bank, claimed the jump in GDP would be “short-lived”, and this is the problem for Labour and its attempts to create a narrative. The party can take the credit now, but having good forecasts in the future is far from certain.