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.
Simon Wells, chief European economist at HSBC, described the figures as “barnstorming” but warned that they may not be sustained.
“Global uncertainty could weigh on investment spending. The second quarter may see a trade hangover if firms brought forward activity, and the impact of April’s higher utility bills and payroll taxes may still come through.”
The figures are likely to be welcomed by the Labour government, which has made boosting private sector investment a central plank of its economic strategy. Since the UK’s exit from the EU in 2020, business investment has consistently lagged behind other G7 economies.
Gabriella Dickens, G7 economist at Axa Investment Managers, said the numbers suggested “genuine underlying momentum” in the economy.
“Despite uncertainty, businesses pressed ahead with investment projects, which is encouraging for future growth.”
The government is hopeful that investment will remain strong following its recent partial trade deal with the US, which removed tariffs on UK steel and aluminium exports and capped car import duties at 10%.
Further progress may be on the horizon, as Prime Minister Sir Keir Starmer prepares to meet EU leaders in London next week, raising hopes for closer economic cooperation and potential progress on UK-EU trade relations.
Meanwhile, the British Chambers of Commerce called for a “trade reset”, urging ministers to prioritise reducing red tape for food and plant exports, agree a youth mobility scheme, and expand work visa access for UK and EU citizens alike.
The government will now be closely watching Q2 data to determine whether this early-year surge is the start of a longer-term trend—or a temporary boost fuelled by external factors and pre-emptive spending.
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UK business investment surges at fastest pace in two years, defying tax hike fears
