Millennium Wheel And Skyline At Sunset. London, England.
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THE British economy rose 0.5% in February, according to preliminary figures from the National Statistics Office released on Thursday.
Economists polled by Reuters had expected Britain’s gross domestic product (GDP) to grow 0.1 percent month-on-month.
Services and production both increased by 0.5%, and construction by 1% in February.
The rebound came after the economy grew by 0.1% in January (the ONS’s first estimate suggested the economy was stagnant).
Although the February data was much better than expected, analysts said it would be considered retrospective data given subsequent events in the Middle East, with the United States and Iran launching military operations against Iran on February 28.
The International Monetary Fund warned earlier this week that the war in Iran could harm the UK’s growth the most of any major economy.
The IMF now forecasts UK growth of just 0.8% in 2026, compared to a previous forecast of 1.3%. that the IMF did in January
“Looking ahead, we expect growth to slow,” Sanjay Raja, Deutsche Bank’s chief U.K. economist, said in an emailed analysis.
“Indeed, greater uncertainty would dampen spending and investment. Tighter financial conditions won’t help either. With confidence weakening, we expect output to suffer as well,” he added.
As a net energy importer, the UK is particularly vulnerable to global energy price shocks, such as that caused by the Middle East conflict, which has put a stranglehold on the region’s oil and gas exports.
Before the war began in late February, the Bank of England was expected to cut interest rates as inflation slowed to its 2% target. But the war put an end to these expectations.
Economists now expect UK inflation to accelerate in March to 3.3% from 3% in February, forcing the bank to raise interest rates at least once this year. The latest inflation data is expected on April 22.
Patrick O’Donnell, chief investment strategist at Omnis Investments, noted that February’s GDP data is likely to have minimal impact on the thinking of Bank of England policymakers at their next meeting at the end of the month.
“With high uncertainty and multiple headwinds, we expect the BoE to sit on its hands. Beyond April, the market is split between 25 basis points and 50 basis points of hikes by the end of the year. With the BoE still considering discount rates to be still in restrictive territory, we currently think it is more likely that they will remain unchanged.”
