LONDON – Embattled British Prime Minister Keir Starmer received a rare piece of good news on Thursday after the UK economy recorded stronger-than-expected growth in Q1.
In the three months to March, the Office for National Statistics said the UK economy expanded by 0.6%, in line with forecasts but 0.4 percentage points stronger than in Q4.
On the month, economic activity grew 0.3%, confounding expectations for a 0.1% contraction. The economy expanded 0.4% in February, following no growth in January.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the economy performed remarkably well during the early stages of the energy price shock stemming from the outbreak of war in Iran.
“There were some signs of a deterioration in activity due to the conflict, including a 6.4% m/m fall in travel agency and tour operator activities. But even some of the most energy-intensive sectors, such as accommodation and food services (1.3% m/m), transport and storage (0.7% m/m), and arts and entertainment (2.2% m/m), posted strong gains.”
Barclays economist Jack Meaning went further, arguing that despite the impressive headline figure and resilience in private consumption, the data did not reflect the economy’s underlying strength, with the bank expecting a sharp deceleration in Q2.
Broad-based contributions
Source: ONS
The ONS said all three main sectors contributed to growth during the quarter.
Liz McKeown, the ONS director of economic statistics, said the expansion was driven by broad-based gains across the services sector.
Services, the largest sector of the economy, grew 0.8% in Q1 following a 0.2% increase in Q4. The largest positive contribution came from wholesale and retail trade, and repair of motor vehicles and motorcycles, which expanded 2.0%, according to the ONS. Within services, business-facing services rose 0.7%, while consumer-facing services increased 0.8%.
Partly offsetting those gains was a 1.0% decline in administrative and support service activities, mainly reflecting weakness in rental and leasing activities and employment services.
“Production also grew slightly (0.2%), while construction (0.4%) returned to growth, though only partly reversing weakness at the end of last year,” McKeown added.
Within production, the main driver was a 0.8% rise in manufacturing and 0.6% growth in electricity, gas, steam, and air conditioning supply. These gains were partially offset by declines in mining and quarrying.
Construction output increased 0.4% over the quarter.
Political noise drowning out the good news
In recent days, markets have reacted negatively to UK assets as last week’s local elections underscored the mounting political pressure facing Starmer’s Labour government.
A total of 136 councils across the UK were contested in the 7 May local elections, with roughly 5,034 council seats up for grabs. Labour lost control of 38 councils, largely to Reform UK, which gained 14, and the Green Party, which gained 5. A further 23 councils moved into “no overall control”.
The result has left Starmer facing mounting questions over his leadership, with several senior ministers reportedly challenging his authority behind the scenes.
UK finance minister Rachel Reeves cautioned that a leadership battle could risk economic stability.
Implications for rate setters
Morgan Stanley’s Bruna Skarica said that, with forward-looking data remaining less robust than the Q1 GDP figures, it was difficult to see the release materially influencing the Bank of England ahead of its June meeting.
“Financial conditions have tightened so sharply in the UK that the RICS survey – the best barometer of the housing market – plummeted to 2023 lows in April. We think the scale of tightening priced in is weighing on the minds of the median MPC member. So, barring adverse developments in commodity markets in the coming weeks, we suspect the strong preference of the majority of the MPC will be to play for time, maintain the hawkish bias, and reassess the need for further hikes at the July meeting.”
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- UK economy grows 0.6% in Q1, services sector powers expansion
- Economists say strong GDP print overstates underlying economic strength
- Analysts expect BoE caution despite stronger-than-expected growth data
By Harry Daniels
LiveSquawk News
@HarryDaniels71
11:00 GMT | 14 May 2026
LONDON – Embattled British Prime Minister Keir Starmer received a rare piece of good news on Thursday after the UK economy recorded stronger-than-expected growth in Q1.
In the three months to March, the Office for National Statistics said the UK economy expanded by 0.6%, in line with forecasts but 0.4 percentage points stronger than in Q4.
On the month, economic activity grew 0.3%, confounding expectations for a 0.1% contraction. The economy expanded 0.4% in February, following no growth in January.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the economy performed remarkably well during the early stages of the energy price shock stemming from the outbreak of war in Iran.
“There were some signs of a deterioration in activity due to the conflict, including a 6.4% m/m fall in travel agency and tour operator activities. But even some of the most energy-intensive sectors, such as accommodation and food services (1.3% m/m), transport and storage (0.7% m/m), and arts and entertainment (2.2% m/m), posted strong gains.”
Barclays economist Jack Meaning went further, arguing that despite the impressive headline figure and resilience in private consumption, the data did not reflect the economy’s underlying strength, with the bank expecting a sharp deceleration in Q2.
The ONS said all three main sectors contributed to growth during the quarter.
Liz McKeown, the ONS director of economic statistics, said the expansion was driven by broad-based gains across the services sector.
Services, the largest sector of the economy, grew 0.8% in Q1 following a 0.2% increase in Q4. The largest positive contribution came from wholesale and retail trade, and repair of motor vehicles and motorcycles, which expanded 2.0%, according to the ONS. Within services, business-facing services rose 0.7%, while consumer-facing services increased 0.8%.
Partly offsetting those gains was a 1.0% decline in administrative and support service activities, mainly reflecting weakness in rental and leasing activities and employment services.
“Production also grew slightly (0.2%), while construction (0.4%) returned to growth, though only partly reversing weakness at the end of last year,” McKeown added.
Within production, the main driver was a 0.8% rise in manufacturing and 0.6% growth in electricity, gas, steam, and air conditioning supply. These gains were partially offset by declines in mining and quarrying.
Construction output increased 0.4% over the quarter.
In recent days, markets have reacted negatively to UK assets as last week’s local elections underscored the mounting political pressure facing Starmer’s Labour government.
A total of 136 councils across the UK were contested in the 7 May local elections, with roughly 5,034 council seats up for grabs. Labour lost control of 38 councils, largely to Reform UK, which gained 14, and the Green Party, which gained 5. A further 23 councils moved into “no overall control”.
The result has left Starmer facing mounting questions over his leadership, with several senior ministers reportedly challenging his authority behind the scenes.
UK finance minister Rachel Reeves cautioned that a leadership battle could risk economic stability.
Morgan Stanley’s Bruna Skarica said that, with forward-looking data remaining less robust than the Q1 GDP figures, it was difficult to see the release materially influencing the Bank of England ahead of its June meeting.
“Financial conditions have tightened so sharply in the UK that the RICS survey – the best barometer of the housing market – plummeted to 2023 lows in April. We think the scale of tightening priced in is weighing on the minds of the median MPC member. So, barring adverse developments in commodity markets in the coming weeks, we suspect the strong preference of the majority of the MPC will be to play for time, maintain the hawkish bias, and reassess the need for further hikes at the July meeting.”