UK GDP beats expectations in the first quarter.

The UK economy expanded by 0.3% month-on-month in March, easing from February’s downwardly revised 0.4% growth but significantly outperforming expectations for a 0.1% contraction.

Data also showed that Britain’s economy grew by 0.6% in the first quarter, accelerating from 0.2% growth recorded in the final three months of 2025.

Stronger-than-expected GDP figures fueled cautious optimism that the economy remains more resilient than initially feared, as analysts had anticipated a sharper slowdown following the escalation of the conflict in the Middle East.

Growth was broad-based across the three main sectors contributing to GDP. Services activity rose 1.5% in March, well above forecasts of 0.9%, while manufacturing output increased by 1.2% against expectations for no growth. Construction activity also surprised to the upside, rising 1.5% compared with forecasts for a 0.5% contraction.

Despite the upbeat data, economists continue to warn about rising recession risks and expect economic growth to weaken or potentially contract modestly in the coming months, as the full economic impact of the war has yet to materialize. Elevated oil prices are expected to intensify inflation pressures and increase borrowing costs, creating broader headwinds for the economy.

Market expectations suggest the Bank of England will likely keep interest rates unchanged at 3.75% through the remainder of the year, although some economists still anticipate at least one additional rate hike as the conflict with Iran continues to drive energy prices higher and lift inflation forecasts.

Meanwhile, financial markets are currently pricing in between two and three quarter-point rate increases before year-end.

Adding to concerns, the deepening political crisis in the UK, which has weakened both the government and Prime Minister Keir Starmer, is also expected to weigh on already fragile economic conditions.