UK Economy Shows Growth in February, But Concerns Remain

The UK economy experienced a 0.5 percent growth in February, according to the Office for National Statistics (ONS). This positive development followed several months of near-stagnation and was characterized by "widespread growth" across various sectors. The ONS had previously revised its January figures to show no growth, and the final quarter of 2024 saw only a 0.1 percent increase, making February's performance a welcome change.

The ONS highlighted strong growth in both services and manufacturing industries. Within services, sectors like computer programming, telecommunications, and car dealerships performed well. In manufacturing, electronics, pharmaceuticals, and car manufacturing showed improvement after recent struggles. Over the preceding three months, the economy also demonstrated robust growth, with broad-based expansion across service industries.

Chancellor Rachel Reeves acknowledged the positive figures but also expressed concerns about tariffs and potential trade wars. She emphasized the government's commitment to its "Plan for Change" and addressing anxieties about the cost of living and the impact on British businesses. The government aims to secure a favorable trade deal with the United States while focusing on economic growth, job security, and national renewal.

The Conservative party downplayed the figures, citing perceived missteps by the Labour government. They argued that Labour's policies had hindered growth and pointed to negative impacts on families.

The February growth occurred before increases in energy bills, labor costs, and the uncertainty caused by US tariffs. Despite these challenges, economists expressed optimism about the UK's economic prospects. The ONS estimated a 0.6 percent growth in the three months leading up to February, largely driven by the services sector.

Economists noted that the February growth exceeded expectations and was relatively broad-based. However, they also acknowledged that tariff developments and market sentiment would likely influence the economic outlook. The Confederation of British Industry (CBI) urged the government to address existing pressures on businesses.

Despite the positive growth figures, economists anticipate an interest rate cut next month to stimulate the UK economy further, given the potential disinflationary shock from global trade developments. The volatility in financial markets may also encourage a shift in fiscal rules. The ICAEW agreed on the likelihood of a rate cut, suggesting that some of the growth may have been driven by businesses accelerating activity due to uncertainty. The next inflation figures will be announced on April 16th, and the Bank of England will discuss potential interest rate cuts on May 8th. In the US, inflation fell in March as the country prepared to deal with the impact of tariffs.