Market Analysis

U.K. Economy Posts Surprise Growth in February, But Trade Worries Loom

Amos Simanungkalit · 11 Apr79.5K Views

Image Credit: REUTERS

The U.K. economy grew by 0.5% in February compared to the previous month, according to data released Friday by the Office for National Statistics (ONS), significantly outpacing economists’ forecasts of a 0.1% increase. The rebound follows a slight 0.1% contraction in January, driven largely by weakness in the production sector.

February’s growth was broad-based, with both the services and manufacturing sectors contributing. The ONS highlighted that the services sector expanded by 0.3% in February, a notable acceleration from January’s 0.1% rise.

The stronger-than-expected figures helped lift the British pound by 0.19% against the U.S. dollar to $1.29 as of 06:45 GMT, while the FTSE 100 jumped 3% in early trading.

However, the outlook for the remainder of the year is clouded by growing concerns over a global trade war, particularly following U.S. President Donald Trump’s announcement of sweeping new tariffs. The measures, which increase the cost of most U.K. exports to the U.S. by at least 10% and significantly raise tariffs on imports from China, are expected to weigh heavily on business confidence and investment.

Adding to domestic pressures, U.K. households are bracing for sharp increases in utility bills and council taxes this month, while businesses face a £25 billion hike in tax obligations, including higher employment taxes and an increase in the minimum wage.

Despite these headwinds, there have been signs of resilience. Retail sales in February exceeded expectations, and wages continue to outpace inflation — offering some relief to households.

Looking ahead, government budget forecasters now project just 1% GDP growth in 2025, down from an earlier forecast of 2%. A stronger 1.9% rebound is expected in 2026, although these projections have been called into question amid the shifting global trade environment.

Analysts at Capital Economics described February’s performance as “a pleasant surprise” but warned that it may not signal a sustained recovery. “Heightened uncertainty and April’s rise in business taxes means February’s resilience is unlikely to last,” the firm said.

They added: “The economy has only grown in four of the last nine months, and it’s hard to see a strong recovery from here. The risk is that the second-order effects of higher U.S. tariffs drag U.K. growth even below our already conservative forecasts of 0.8% for 2025 and 1.2% for 2026.”