UK GDP grew by 0.6% in the first quarter, according to data released today by the Office for National Statistics today - higher than expected by many economists.
The rise follows growth of just 0.1% in the October to December quarter, which had raised fears of a UK recession.
The Q1 figure may have been higher than expected by some, but a deeper dive into the figures mask deeper ‘causes for concern’ according to Evelyn Partners’ David Goebel.
GDP growth in March was 0.3% - also higher than expected.
Gross fixed capital formation fell 0.6% quarter-on-quarter, and business investment, while up 0.7% on the quarter, remains 1.8% lower year-on-year – which Evelyn Partners’ notes is ‘a persistent signal of corporate hesitancy.’
Exports grew 0.1%, while imports rose 0.6%, pointing to a drag from net trade.
Mr Goebel said: “In recent years, early-year growth has tended to be front-loaded and followed by a slowdown, and there is a concern this year could follow in that pattern. With energy costs rising from the Iran conflict, which has kept Brent crude well above $100 a barrel, the impact in subsequent quarters will be marked. Full-year 2026 growth is currently estimated at just 0.8%, and could be much lower in the event of continued oil price escalation.”
Luke Bartholomew, deputy chief economist at Aberdeen Investments, agreed that the risk of a recession remains high.
He said: "While GDP growth was actually pretty solid over Q1, it is hard to see this mattering very much to markets given how much things have moved on since then in both international and domestic politics. Higher energy prices will weigh on growth, stunting any recovery that might otherwise have been occurring. And ongoing political uncertainty is likely to weigh on investment given the possibility of a significant change in fiscal policy.
“So the risk of a recession later this year is elevated, but for now the key driver of the gilt market is likely to be political developments rather than economic data."
Lindsay James, investment strategist at Quilter, said that the data shows that tax rises may be necessary later this year.
She said: “Tax rises or spending restraint may become harder to avoid if market pressure persists, while any signs of wavering on fiscal discipline could risk further unease in the gilt market. Rachel Reeves is still viewed by many investors as an important anchor for confidence, but the rigidity of the fiscal rules means policy can too often be shaped by short-term moves in fiscal headroom rather than a long-term plan for sustainable growth.
“For investors, the concern is that a fragile domestic recovery is now meeting a much less forgiving global backdrop, at the same time as political risk is again being priced into UK assets.”
Rob Morgan, chief investment analyst at Charles Stanley, believes the future for the UK economy this year is reliant on energy costs.
He said: "If energy prices retreat, the UK economy could weather the storm reasonably well and even reaccelerate later in the year. But a higher plateau risks pushing the country towards an unwelcome cocktail of ‘stagflation’ – stubborn inflation and weaker growth – that dents both corporate performance and household budgets."