Britain’s economy experienced a notable surge in February, indicating it was in a somewhat stronger position before the onset of the Iran war than many experts had anticipated. Official data revealed that the Gross Domestic Product (GDP) expanded by 0.5% month-on-month, marking the largest increase since January 2024. This figure surpassed economists’ expectations, who had predicted a more modest 0.2% growth.
While this data is likely to be welcomed by UK Finance Minister Rachel Reeves, analysts caution that the country remains susceptible to the repercussions of the Middle East conflict. The UK’s heavy reliance on imported energy and its tendency toward higher inflation compared to other advanced economies pose significant risks. Fergus Jiminez-England, associate economist at the National Institute for Economic and Social Research, noted that the recent energy price surge has likely undermined this positive momentum, forecasting another year of inflation above target levels alongside a weakening labor market.
In a significant development, the International Monetary Fund recently downgraded the UK’s economic growth outlook more sharply than for other major advanced economies, attributing much of this revision to the Iran war’s impact.
The services sector played a key role in driving February’s economic expansion. Grant Fitzner, chief economist at the Office for National Statistics (ONS), highlighted broad-based growth across services and a rebound in car production following disruptions caused by a cyber incident in the autumn. For the three months ending in February, the economy grew by 0.5%, positioning the UK for a robust first quarter for the third consecutive year.
This consistent pattern has raised questions among some economists about the ONS’s seasonal adjustment methods, especially given the unusual fluctuations in output during the COVID-19 pandemic. However, the ONS firmly defended its approach, stating that statisticians have thoroughly reviewed the process and remain confident in the accuracy of the figures.
James Smith, an economist at ING, expressed skepticism about whether the ONS fully accounted for the effects of the previous high inflation period in its seasonal adjustments and the timing of price changes. He remarked that a strong rebound in February or March was anticipated due to these factors but emphasized that such considerations are now overshadowed by the current crisis.
Additional ONS data revealed that Britain’s total trade deficit, excluding precious metals, widened in inflation-adjusted terms to £5.627 billion ($7.62 billion) in February, the highest level since November 2024. This increase was primarily driven by imports, which reached their second-highest level on record, following December 2022.
