The U.K. economy expanded by 0.5% in February compared to the previous month, official data showed on Friday, rebounding from a modest decline in January. Economists had forecast a smaller increase of 0.1%.
The Office for National Statistics (ONS) said growth in February was broad-based across services and manufacturing. In January, the economy contracted by 0.1%, mainly due to a decline in the production sector.
The ONS, which published the provisional figures, said a 0.3% growth in the services sector had fueled the unexpected jump in growth. In January, services had seen a 0.1% monthly rise.
The British pound rose around 0.19% on Friday against the dollar to 1.29 as of 06:45 GMT, while the FTSE 100 equity index jumped 3%.
The February figures may represent the last period of growth before concerns over a global trade war begin to weigh on business investment and consumer spending.
This month, households are facing sharp increases in utility bills and council tax, while employers are dealing with £25bn of tax rises.
Britain’s economy expanded by 1.1% in 2023. In March, government budget forecasters lowered their 2025 growth projection to 1%, from 2%, though they expect a stronger performance of 1.9% in 2026.
However, these forecasts have been called into question following President Donald Trump’s announcement last week of sweeping tariffs on U.S. imports. The measures raise the cost of most British exports to the United States by at least 10% and more than double the cost of imports from China.
Even prior to the tariff announcement, economic activity in the U.K. and across Europe had slowed amid uncertainty over U.S. trade policy. British businesses reported pulling back on hiring and investment plans in response to a sharp rise in employment taxes and the minimum wage that took effect in April.
Still, there had also been signs of improvement in consumer demand, with retail sales exceeding economists’ expectations in February and wage growth continuing to outpace inflation.
Strategists at Capital Economics said the stronger-than-expected growth was "a pleasant surprise" but "heightened uncertainty and April’s rise in business taxes means February’s resilience is unlikely to last."
"The big picture is that the economy has grown in only four of the last nine months and it’s hard to see the economy strengthening much from here," the firm added.
"The rises in business taxes kick in from April and the clear risk is that the second-order effects of higher U.S. tariffs on the U.K. economy causes GDP growth to be lower than our below-consensus forecast of 0.8% in 2025 and 1.2% in 2026."
Source: Investing