UK Q1 GDP data may be amplifying economy's H1 2025 strength: S&P GMI

The company’s chief business economist Chris Williamson said there is a hint of the data not fully accounting for seasonal trends, meaning growth is possibly being exaggerated in the first half of the year and understated in the second half.

Official data showed UK gross domestic product (GDP) growing by 0.7 per cent quarter on quarter (QoQ) in Q1 2025, suggesting that economic growth has accelerated sharply in the quarter compared to the lacklustre 0.1 per cent growth seen in Q4 2024. The January to March quarterly expansion was the strongest since the first quarter of last year.

If the GDP data is compared with other sources of information on the health of the economy, such as the purchasing managers’ index (PMI) surveys, the relatively higher volatility of the GDP over the past 18 months in particular is further highlighted, though both series have undoubtedly been volatile since the pandemic, Williamson said in a company release.

It is also noteworthy that the official data also showed GDP up by merely 1.2 per cent compared to a year ago in Q1 2025—down from 1.4 per cent in Q4 2024. So in year-on-year terms, which perhaps better removes any seasonality, the economy in fact slowed slightly in the first quarter, he noted.

“If correct, this suggests that the quarterly GDP data may be exaggerating the strength of the economy in the first half of 2025, setting us up for a period of exaggerated weakness in the second half of the year,” he noted.

While the PMI data do also suggest that growth improved in the first quarter, the upturn was considerably less impressive than signalled by the GDP numbers, and that a marked weakening in the economy had in fact become apparent in April.

The PMI covering the output of manufacturing, services and construction sectors fell to 48.4 at the start of Q2 2025—down from 51 in March and below the 50 no change level—to signal a drop in business activity for the first time since October 2023, he added.

ALCHEMPro News Desk (DS)