Insights 
VT 
The UK economy grew by 0.2% in March, surpassing the expected 0.0% growth, according to data from the Office for National Statistics as of 15 May 2025. This follows a prior increase of 0.5% in February.
Sector Performance Overview
Service sector growth reached 0.4%, above the anticipated 0.1%, with a previous rise of 0.3%. Industrial output fell by 0.7%, more than the predicted 0.5% decline, yet faced an earlier increase revised from 1.5% to 1.7%.
Manufacturing output dropped by 0.8%, exceeding the expected 0.5% decrease, following a previous increase revised from 2.2% to 2.4%. Conversely, construction output grew by 0.5%, outpacing the forecasted 0.1% rise, with a prior increase revised from 0.4% to 0.2%.
This monthly data positively influences perceptions of the UK economy’s first-quarter performance, with the quarterly report reflecting these improved estimates. The figures provide insight into economic trends across key sectors such as services, industry, and construction.
What the data tells us is that the UK economy has performed slightly better than many had forecast. A 0.2% monthly rise in March, although modest, came as a welcome surprise compared to the flat reading markets had been preparing for. When taken together with February’s upwardly revised growth of 0.5%, the picture becomes more supportive of a recovery that hadn’t fully been priced in at the start of the second quarter. That’s meaningful in our world, particularly when we consider expectations were more muted heading into this data release.
The services sector continues to carry most of the forward momentum. With output climbing by 0.4%—well ahead of forecasts—it’s clear that consumer-facing industries have held up strongly. Part of this strength is due to ongoing resilience in real household incomes and stronger-than-expected retail activity in early spring. Meanwhile, industrial production and manufacturing displayed sharper contractions than hoped, with the latter sliding by 0.8%. That sort of drop tells us demand for goods may still be lagging post-pandemic highs. Supply chains are no longer the bottleneck they once were, so the softness is less from disrupted inputs and more likely a function of cooling output demand at home or abroad.
Construction Activity and Future Considerations
Interestingly, while manufacturing has retreated, the construction sector posted better figures. A 0.5% monthly rise, against what was actually quite a tepid forecast, suggests that we’re seeing renewed activity in commercial and infrastructure projects. Housebuilding remains weighed down by elevated borrowing costs, yet higher public and private investment in large-scale developments likely explains the pick-up. That should be monitored carefully as it could inform broader patterns in fixed capital formation later this year.
Looking ahead, we’re not inclined to dismiss the slowing industrial output out of hand. Month-on-month readings in these segments often swing more heavily due to their volatile nature. But the deeper contraction than expected, after such a strong February, hints at the potential for more uneven contributions from industry in the near term. That’s especially relevant given how manufacturing makes up a smaller share of the economy but can materially shift short-term growth estimates when large moves are observed. It skews things at the margin.
The adjustments to previous months’ data—February’s industrial and manufacturing expansions revised up once again—also merit attention. They imply the economy had more momentum coming into March than originally captured. Revisions like these aren’t just cosmetic; they recalibrate our broader understanding of economic baselines. And for us, that alters how we approach short-duration rate-sensitive positions, as well as index futures pricing tied to GDP benchmarks.
Forward guidance becomes less certain when such divergences across sectors appear. With growth still supported largely by services and construction, but not industry, divergences in price action across asset classes tied to different sectors should begin to emerge. That’s not something to gloss over. During periods like this, movements in yield curves—particularly the front end—may decouple somewhat from macro sentiment if fixed asset weakness continues.
While quarter-on-quarter data will eventually smooth these monthly wobbles, the March figures introduce a level of directional clarity. At this stage, adjustments in macroeconomic models now lean toward upward revisions for Q1, which could bring forward shifts in expectations about interest rate decisions. The key thing is to model sectoral divergence rather than rely solely on the aggregated headline.
What needs consideration now is how consistent these service-driven gains will be through the second quarter, given how heavily they’ve supported the overall outturn so far. Weather and seasonal expenditure patterns could play a larger role than usual in next month’s prints, particularly in discretionary segments. That possibility should be factored in when adjusting for short-term expectations.
The higher-than-expected construction activity, though smaller in size, matters because it’s often a more reliable proxy for investment planning. For that reason, sensitivities in equity markets tied to engineering, materials, or logistics may still have more room to price in these subtle but persistent upside surprises. We should remain aware of how these softer indicators are feeding into real asset allocations.
Ultimately, while the headline GDP reading improved only modestly, the composition of the gains matters more. The structure is shifting. That tells us where elasticity lies in economic output—what is reacting, and what is not. And that’s the terrain we manoeuvre on.
