The UK economy grew by 0.5 per cent in February in a boost to Labour following several months of almost flatlining, with the Office for National Statistics pointing to “widespread growth” across multiple sectors.
In January, an unexpected 0.1 per cent decline was initially reported before ONS revised up their estimates to a flat month, following just 0.1 per cent growth in the final quarter of 2024 – so February’s change of gears will be welcome news to Rachel Reeves.
Commenting on today’s GDP figures for February, ONS director of economic statistics Liz McKeown said: “The economy grew strongly in February with widespread growth across both services and manufacturing industries.
“Within services, computer programming, telecoms and car dealerships all had strong months, while in manufacturing, electronics and pharmaceuticals led the way and car manufacturing also picked up after its recent poor performance.
“Across the last three months as a whole, the economy also grew strongly with broad-based growth across services industries.”
Speaking on the data, chancellor Rachel Reeves acknowledged that the positivity would be tinged with more immediate concerns over tariffs and potential trade wars, on the back of a wild week in the stock markets.
“These growth figures are an encouraging sign, but we are not complacent. We must keep going further and faster on our Plan for Change,” Ms Reeves said.
“The world has changed, and we have witnessed that change in recent weeks. I know this is an anxious time for families who are worried about the cost of living and British businesses who are worried about what this change means for them. This Government will remain pragmatic and cool-headed as we seek to secure the best deal with the United States that is in our national interest. At the same time we will be relentless in our work to kickstart economic growth, provide security for working people and renewal for Britain.”
In response, the Conservative party played down the figures and pointed to perceived missteps from the Labour government previously.
Mel Stride MP, shadow chancellor of the exchequer, said: “Since coming to office, Labour’s choices have killed growth stone dead and there is still a long way to go to recover.
“At the emergency budget, the forecasts for growth, inflation and borrowing all moved in the wrong direction because of Labour’s decisions. Hardworking families deserve better than a Government crowing about sluggish growth whilst they will be £3,500 worse off because of the Jobs Tax.”
While the rate of growth was definitely of a larger scale than some had anticipated, today’s data does point to February – before increases in energy bills, rises in labour costs through National Insurance and minimum wage, plus the more recent and unexpected advent of uncertainty caused by the US president placing tariffs on nations around the globe.
Even so, the spread of growth should provide optimism within the UK, say economists, with ONS pointing to estimated 0.6 per cent growth in the three months to February 2025, in large part due to services sector growth.
“The economy grew much faster than expected in February. Some of this probably represents standard monthly volatility, but the strength is reasonably broad, and the data should provide some reassurance that growth was holding up before tariffs, national insurance, national living wage and the Spring Statement impacted,” Luke Bartholomew, deputy chief economist, at aberdeen said.
“However, tariff developments and the swings in market sentiment will likely dominate any backward looking data in terms of shaping the outlook for the economy and policy.”
Martin Sartorius, principal economist at the Confederation of British Industry (CBI), urged the government to continue seeking out ways to “ease existing pressures” on businesses.
“UK GDP growing above expectations in February provides some hope that the economy may have seen a solid expansion over the first quarter, following a soft patch in the second half of last year. However, underlying momentum in the private sector remains feeble. Many firms are grappling with higher labour costs following the Autumn Budget, and the recently announced US tariffs are expected to weigh on the UK and global economies.
“Businesses are clear that the government should try to avoid further escalation in trade tensions, and instead double down on its commitment to free, fair, and open trade. However, firms also need further measures to bolster confidence amid a tough and uncertain operating environment.
“By adopting a whole-economy perspective and using this opportunity to explore ways to ease existing pressures on businesses – such as implementing smarter regulation or revisiting the Employment Rights Bill – the government can help kickstart growth, foster innovation, and boost productivity.”
Despite the overall positive impact of the growth figures, the backward-looking nature of them and what has since transpired with Donald Trump’s tariffs means an interest rate cut is still expected next month, in order to stimulate further the UK economy.
“We continue to expect another rate cut from the Bank of England in May despite the somewhat growth given the likely disinflationary shock from global trade developments,” added aberdeen’s Mr Bartholomew.
“Meanwhile, the volatility in gilt yields may further encourage an eventual shift in the fiscal rules, as the government tries to insulate from some of the externally-driven movement in financial conditions.”
Suren Thiru, economics cirector at ICAEW, agreed and pointed out part of the larger than expected growth may continue into the next data set, due to firms bringing forward business while uncertainty reigned at the time.
“February’s figures have been pushed firmly into the background by the financial market bedlam caused by Trump’s tariff announcements,” he said.
“It should mean a notably positive first quarter for the UK economy, with modest growth in March likely, possibly aided by a temporary boost from some companies bringing forward activity ahead of new US tariffs taking effect.
“Despite Trump’s partial tariff climbdown, the damaging aftereffects from this turbulence will be felt for some time with the resulting global uncertainty likely to further undermine the UK economy as it already reels from April’s surge in business costs.
“The greater global financial and economic instability caused by the US tariff announcements makes a May rate cut look more likely than not, by further fuelling rate setters’ concerns over the underlying resilience of the UK economy.”
The latest UK inflation figures will be announced on 16 April, with the next Bank of England meeting to discuss potential interest rates cuts coming on 8 May.
In the US, inflation fell by more than expected to 2.4 per cent in March, as the country prepares to deal with the impact of Donald Trump’s back-and-forth tactics on tariffs.
