Rachel Reeves breathed a sign of relief today as the economy turned in better-than-expected growth in the first quarter of the year.

The Chancellor hailed the 'strength and potential' of UK plc after official figures showed a 0.7 per cent expansion - quelling fears of a looming recession.

It was better than the 0.6 per cent analysts had pencilled in, with Ms Reeves boasting that activity had outstripped the US, Canada, France, Italy and Germany.

However, there were worrying signs in March, when the rate of improvement in GDP slowed to just 0.2 per cent. Firms have been warning of worse to come as Labour's massive national insurance raid and minimum wage hikes did not take effect until April.

The full impact of Donald Trump's trade war has also yet to be felt.

A former No10 aide warned today that more tax increases are inevitable as Ms Reeves struggles to balance the government's books.

Nick Williams, who was in Downing Street until last month, said current public spending plans were 'not credible'. 'The bottom line is that taxes will have to go up,' he wrote in the Times.

Chancellor Rachel Reeves arrives in Downing Street for a Cabinet meeting on Tuesday

The 0.7 per cent growth was the highest since the first quarter of 2024, when the economy jumped by 0.9 per cent.

The first quarter figures represent the period directly before Donald Trump imposed a swathe of global trade tariffs as part of his April 'Liberation Day' announcement.

They also come before the increase in company national insurance contributions, which some economists have said will force firms to cut jobs.

The tariffs and tax rises are expected to pull down the economy in the second quarter of 2025.

The Chancellor said the growth figures showed the Government was 'making the right choices' but acknowledged 'there is more to do'.

She said: 'Today's growth figures show the strength and potential of the UK economy.

'In the first three months of the year, the UK economy has grown faster than the US, Canada , France , Italy and Germany.

'Up against a backdrop of global uncertainty we are making the right choices now in the national interest.

'Since the election we have already had four interest rate cuts, signed two trade deals, saved British Steel and given a pay rise to millions by increasing the minimum wage.

'Our plan for change is working. But I know there is more to do and that is why I'm determined we go further and faster to make working people better off.'

The Bank of England has upgraded its prediction for the year ahead, forecasting that the economy will grow by 1 per cent in 2025, ahead of its previous 0.75 per cent forecast

Meanwhile shadow chancellor Sir Mel Stride said both the Office for Budget Responsibility and the International Monetary Fund had downgraded short-term growth forecasts and hit out at the hike in employers' national insurance, which he branded a 'jobs tax'.

'While it's welcome the economy is growing, both the OBR and IMF have downgraded the UK's growth,' Sir Mel said.

'Labour inherited the fastest-growing economy in the G7, but their decisions have put that progress at risk.

'Labour's jobs tax, unemployment bill and reckless choices have seen the number unemployed rise by 10 per cent and working families £3,500 worse off.

'Only the Conservatives believe in low tax, free-enterprise and less regulation, giving business the conditions to create good well paid jobs and wealth in our economy.'

Liz McKeown, ONS director of economic statistics, said: 'The economy grew strongly in the first quarter of the year, largely driven by services, though production also grew significantly, after a period of decline.

Shadow chancellor Sir Mel Stride (pictured) said both the Office for Budget Responsibility and the International Monetary Fund had downgraded short-term growth forecasts

'Growth in services was broad based, with wholesale, retail and computer programming all having a strong quarter as did car leasing and advertising.

'These were only slightly offset by falls in education, telecoms and legal services.'

The Bank of England last week upgraded its prediction for the year ahead, forecasting that the economy will grow by 1 per cent in 2025, ahead of its previous 0.75 per cent forecast on the back of a strong start.

The Bank's policymakers cut UK interest rates to 4.25 per cent this month after a slowdown in inflation.

The GDP announcement comes after recent data which the ONS said pointed to a 'cooling' jobs market in the first quarter of the year.

Earlier this week, figures showed that wage growth eased back in the three months to March while Britain's unemployment rate hit a near four-year high.