In a surprise development, the U.K. economy experienced a growth of 0.5% month-on-month in February, significantly surpassing analysts’ forecasts which predicted a modest increase of just 0.1%. This data was released by the Office for National Statistics on Friday.
The impressive growth was primarily fueled by a 0.3% rise in the services sector, which builds on January’s slight 0.1% increase in this area.
February also marked a notable turnaround in production output, which grew by 1.5% month-on-month following a contraction of 0.5% in January. The construction sector mirrored this recovery, rebounding with a 0.4% increase after a 0.3% decline the previous month.
Following the release of these statistics, the British pound strengthened against the U.S. dollar, gaining 0.6% to reach $1.3047 in London by 8:08 a.m.
In contrast, an earlier estimate for January indicated a surprising shrinkage of 0.1% in the economy, although this figure was later revised to show no growth in that month.
Overall, the U.K. economy has faced challenges in building momentum over the past year. Previous ONS data revealed a mere 0.1% GDP growth in the fourth quarter of last year after the economy had remained flat in the quarter prior.
The newly released figures coincide with concerns surrounding the anticipated economic effects of fresh 10% tariffs on British exports to the United States.
British officials were hoping to mitigate the impact of U.S. President Donald Trump’s tariff policies, as the United States represented 17% of the U.K.’s international trade by September 2024, making it the nation’s largest trading partner.
Should Trump’s previously postponed reciprocal tariffs be reinstated post-summer, the U.K. would face additional 10% duties on its exports.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, noted that the uncertainty stemming from these tariffs may overshadow the positive economic data when the Bank of England deliberates on interest rate adjustments next month.
Current market expectations suggest that a 25-basis-points reduction in interest rates may occur in May, which would lower the central bank’s core rate to 4.25%, according to LSEG data.
“While February’s figures show a robust recovery in services and manufacturing output, the financial turmoil arising from Trump’s tariff announcements has dominated the narrative,” Thiru explained.
He added that the increased global financial and economic instability linked to U.S. tariff plans makes it more probable that the Bank of England will opt for a rate cut in May, as concerns grow regarding the underlying resilience of the U.K. economy.
Meanwhile, significant cuts to welfare spending and an increased tax burden on businesses have raised further alarms about future economic prospects.
Last month, the U.K.’s Office for Budget Responsibility notably revised its growth forecast for 2025, reducing it from 2% to just 1%.
