Barclays (LON:BARC) has revised its growth forecast for the UK’s first quarter GDP to 0.7% quarter-on-quarter, up from the previous estimate of 0.2%, following February’s robust GDP data, which showed a month-on-month increase of 0.5%.
The upward revision is primarily attributed to an anticipated surge in exports to the United States, as firms react to the possibility of new tariffs. Despite this, Barclays maintains its growth forecast beyond Q1 2025 unchanged due to the expected impact of tariffs starting in Q2.
The detailed GDP report indicated broad-based sector strength, with services, industrial production, and construction all contributing to the rise. However, Barclays believes the export boost is temporary, as it reflects a front-loading of goods in anticipation of US tariffs. This led to an increase in UK goods exports to the US by £0.5 billion in February, contributing to the higher Q1 export growth forecast.
In a note on Friday, Barclays also highlighted signs of softening in the UK labor market, with an increase in redundancy notifications and a contraction in permanent job placements. The official labor market data, expected this week, is anticipated to show a slight decrease in the unemployment rate to 4.3% for February.
Wage growth is also expected to moderate, with Barclays forecasting a slowdown in regular private sector earnings growth to 5.9% year-on-year.
Inflation is another area of focus, with Barclays predicting a slight decrease in the headline CPI inflation to 2.7% year-on-year for March, down from 2.8% in February. This is expected to be driven by a combination of a slight acceleration in core goods inflation and a decrease in services inflation.
Looking ahead, Barclays expects the Monetary Policy Committee (MPC) of the Bank of England to conclude at their May meeting that the impact of tariffs will be net disinflationary. This assessment comes despite the MPC’s current refusal to comment on the inflationary impact of tariffs.