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On February 22, 2025, vendors and shoppers were seen bustling along Portobello Road Market in Notting Hill, West London.
Recent reports indicate that the U.K. economy experienced a surprising growth of 0.5% month-on-month in February, attributed primarily to a noticeable increase in the output of the services sector, according to official data released on Friday.
Prior estimates from analysts predicted a modest increase of only 0.1% for February, based on data from LSEG.
The Office for National Statistics (ONS), responsible for the release of these preliminary figures, noted that a 0.3% gain in the services sector was a significant factor driving this unexpected growth. In contrast, the services sector had only seen a 0.1% increase in January.
Moreover, the production sector showed marked improvement in February, achieving a 1.5% month-on-month growth after a 0.5% decline recorded in January. Meanwhile, construction output also rebounded, growing by 0.4% in February following a 0.3% decrease the previous month.
The positive economic report had an immediate effect on the currency market, with the British pound appreciating by 0.2% against the dollar, rising to $1.2988 shortly after the data was made public.
In January, initial reports indicated that the U.K. economy contracted by 0.1%, but this figure was later adjusted to show that the economy remained unchanged from the previous month.
Despite this latest data depicting a positive trend, the U.K. economy has faced challenges in maintaining consistent growth over the past year. Earlier ONS data indicated that the country’s GDP only grew by 0.1% in the fourth quarter of the previous year after stagnating in the quarter before that.
These figures emerge at a time when the U.K. is preparing for the economic implications of new 10% tariffs imposed on its exports to the United States.
British authorities had hoped to mitigate the impact of U.S. tariffs enacted under President Donald Trump’s administration, especially given that the U.S. represented 17% of the U.K.’s international trade in the year ending September 2024, making it the U.K.’s largest trading partner.
Should the suspended reciprocal tariffs resume following their temporary halt this summer, the U.K. could face additional duties on its goods entering the U.S. market.
Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, expressed concerns that the uncertainty stemming from the tariffs might overshadow the positive economic data when it comes to the Bank of England’s upcoming decision on interest rates.
Current market forecasts are indicating a potential 25-basis-point reduction in rates by the Bank of England in May, which would lower the core interest rate to 4.25%, as per LSEG data.
“Despite a strong rebound in both services and manufacturing, the market upheaval caused by Trump’s tariff announcements looms larger than February’s encouraging results,” Thiru noted.
He added that the heightened global economic instability stemming from these tariff decisions has made a rate cut in May appear increasingly probable, potentially increasing concerns among rate setters regarding the overall robustness of the U.K. economy.
At the same time, significant cuts to welfare spending and an increased tax burden on corporations have raised apprehensions about the future economic landscape.
Recently, the Office for Budget Responsibility (OBR) slashed its growth forecast for the U.K., reducing its estimate from 2% to just 1% for 2025, highlighting the ongoing struggles the economy faces.
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www.cnbc.com