UBS stays cautious on U.K. outlook despite stronger Q1 growth

Published 16/05/2025, 11:00
© Reuters.

Investing.com -- On Thursday, the United Kingdom (TADAWUL:4280)’s economy exhibited stronger-than-anticipated growth in the first quarter of 2025, with the gross domestic product (GDP) increasing by 0.7% quarter-on-quarter, surpassing the high expectations set by economists and the Bank of England.

This growth marked a significant improvement from the 0.1% expansion seen in the final quarter of 2024.

The positive outcome was broadly supported by a pickup in private consumption, which grew from 0.1% in the previous quarter to 0.2% in Q1, and a robust increase in fixed investment, which surged by 2.9% after a decline of 0.6% in the prior quarter.

These factors collectively contributed 0.6 percentage points to the GDP growth.

Despite the strong first-quarter performance, UBS analysts remain cautious about the U.K.’s economic prospects.

In a note on Thursday, UBS acknowledged the upside risk to their 2025 GDP growth forecast of 0.8%, which was recently revised up by 0.1 percentage points for both 2025 and 2026.

The revision reflects recent developments, including a 90-day pause in reciprocal tariffs, a temporary reduction in U.S.-China tariffs, and new trade deals with the U.S. and India.

However, UBS emphasizes that the direct impact of the U.K.’s latest trade agreements is likely to be limited, with the country still facing an average U.S. tariff of 9.1%.

Moreover, the uncertain global trade environment and potential negative spillovers from tariffs imposed on other U.S. trading partners, particularly the EU, pose significant headwinds to the U.K. economy, which is highly sensitive to external shocks due to its status as a small open economy.

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