Business investment in the UK jumped by 5.9% in the first quarter of 2025, marking the fastest pace of growth in two years and easing concerns that recent payroll tax increases would curb private sector spending.
According to the Office for National Statistics (ONS), the sharp rise in investment from January to March helped lift overall economic growth to 0.7% in the quarter, with business spending alone contributing 0.5 percentage points. The rebound follows a 1.9% contraction in the final quarter of 2024 and marks the strongest investment figures since early 2023.
The unexpected surge also helped offset a drop in government expenditure, driven by lower public sector spending on health and education in the lead-up to next month’s departmental budget review.
The data comes after widespread warnings from large employers and trade groups that increases in employers’ national insurance contributions and the national living wage—both implemented on April 1—could dampen business sentiment and lead to cutbacks. Several retailers had signalled potential headcount reductions.
However, the ONS revealed that a large portion of the investment growth was driven by spending in the transport and aircraft sectors, likely influenced by firms front-loading purchases amid uncertainty over US tariffs. There was also robust growth in information technology and machinery, reflecting stronger domestic demand.
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