Next month's base rate cut 'off the table' as GDP grows by unexpected 0.7%

UK GDP rose by 0.7% over Q1, outperforming the Bank of England's projections.

GDP grew by 0.2% in March, following growth of 0.5% in February, outgrowing the Bank of England’s cautious 0.3% projection. 

Growth was driven by an increase of 0.7% in the services sector, while production also grew by 1.1%.

Some industry experts believe that the strong figures mean the Bank of England won't rush into more base rate cuts to stimulate economic growth. 

But other noted that the numbers 'look backwards', highlighting the onset of the tariff war, National Insurance and living wage hikes since Q1, believing the UK could be in for a 'bumpy economic ride for the rest of the year'.

Discussing what the figures could mean for interest rates, Peter Stimson, head of product at MPowered, commented: “The economy’s surprisingly solid growth gives the Bank of England one less thing to worry about, leaving it to focus entirely on next week’s inflation figures.

“Donald Trump’s truce in his trade war with China and the UK’s success in signing bilateral trade deals with the US and India have helped dispel fears of a recession, and today’s robust GDP numbers suggest that Britain’s economy is keeping its head well above water.

“In response, the 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. The swaps market - which gives the best projection of the future course of mortgage interest rates - still forecasts that the base rate will be cut twice more in 2025, but the timeframe is being pushed back.

“So while there is still intense competition between mortgage lenders, their ability to keep reducing their interest rates may be over for the time being. Swap rates have been rising in the last week and the flurry of rate-cutting we saw in April risks going into reverse, at least in the short term. For now, this is as good as things will get.”

Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, holds a more cautious view, stating: “From a policy perspective, today’s figures are unlikely to influence the Bank of England’s interest rate deliberations. The base rate has already been cut, and the Bank’s growth forecasts remain conservative at best. The Bank’s rate-setters have indicated that for now, there are no strong reasons to alter the carefully calibrated and gradual pace of future rate cuts.”

Isaac Stell, Investment Manager at Wealth Club, commented: "With the winds of tariff turmoil whipping up economic seas, today's better than expected GDP figures for the UK show an economy that has so far been able to navigate itself to calmer waters. 

"UK GDP grew at a faster rate of knots during the first quarter and its fastest rate in three quarters. Impressive, albeit backward looking. 

"It could be easy to get carried away by today's positive surprise, but the winds of tariff turmoil are yet to be fully appreciated in the figures. It was only a few days after the quarter end that the ‘Liberation Day’ tariffs were announced and the impact from the tariff induced storm will likely have pitched the economy onto a different path, at least in the short term. 

"Navigating back to port is likely only to get harder in the coming months due to the higher living wage and national insurance rises that came into effect in April, coupled with the tariff turmoil, this could make for a bumpy economic ride for the rest of the year.”

Derrick Dunne, CEO of YOU Asset Management, added: “These growth figures come as a significant upside surprise at a time when it is much easier to hear gloom about the economy than see optimism. But is more optimism now warranted?

“The numbers reflect the period immediately before US tariff hikes set off major global repercussions. This data will have captured some of the pre-emptive activity ahead of that storm and is likely the reason for the upside surprise. This could, therefore, be flattering to deceive the forward picture. Nonetheless, this will ease some of the concern in the Treasury as to important factors such as tax receipts in 2025 and the pressure that UK businesses and households are labouring under.

“However, it must not be disregarded that these numbers look backwards. Since the first quarter we’ve had the onset of the tariff war, National Insurance and living wage hikes plus a raft of bill increases. While the politics of these issues are complex, the plain economics of them is not conducive to more growth. These numbers are a welcome surprise, but they are unfortunately no indicator of better days ahead for the UK economy."