UK GDP Growth May Delay Bank of England Rate Cuts – ICAEW

Strong Start to 2025 May Delay Bank of England Rate Cut

The UK economy recorded stronger-than-expected growth at the start of 2025, potentially complicating the Bank of England's plans to cut interest rates in the coming months. According to official data, gross domestic product (GDP) rose by 0.7% in the first quarter of the year, outpacing economists' forecasts.

Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales (ICAEW), warned that despite the positive headline figure, the growth was largely driven by temporary factors, particularly front-loading of trade activity due to upcoming tariffs.

“This is likely to be the peak for economic growth this year,” Thiru said. “The increase is more reflective of one-off events than underlying economic strength.”

He noted that businesses may have rushed to import goods ahead of anticipated tariff increases, artificially boosting trade and output figures for the quarter. However, as those effects fade, the UK economy is expected to slow.

Adding to the pressure are planned tax increases, tighter household budgets, and heightened economic uncertainty, all of which could weigh on consumer and business activity in the months ahead.

The stronger-than-expected GDP figures could delay a long-anticipated interest rate reduction by the Bank of England. Policymakers remain cautious as inflation, while moderating, is still above the central bank’s 2% target.

“Interest rate decisions will depend on the underlying drivers of inflation, not just headline GDP numbers,” Thiru emphasized.

The Bank of England is set to meet again in the coming weeks, and market expectations had leaned toward a rate cut. However, this latest economic data may give the central bank pause as it assesses whether inflationary pressures have truly subsided.