The UK economy grew for the second month in a row in February, driven by expansion in manufacturing and raising hopes the UK is emerging from a technical recession.
Gross domestic product (GDP) increased by 0.1 per cent between January and February, the Office for National Statistics (ONS) said on Friday.
The benchmark FTSE 100 index rose 1.2 per cent after the news, putting it on track to close at a record high. Sterling was down 0.5 per cent against the dollar at $1.2495 (€1.17) in midmorning trading in London, pushed lower by a broader surge in the dollar.
February’s figure raises the likelihood that the UK economy expanded overall in the first quarter, marking the end of the technical recession it slipped into at the end of 2023 after two consecutive quarters of negative growth.
Mortgage holders to see dramatic fall in repayments
The Irish Times Business Person of the Month: Cathal Fay, Yuno Group
The power market should reflect that renewable energy is cheaper
Shed Distillery founder Pat Rigney: ‘We’re very focused on a premium position but also on giving value for money to consumers’
“GDP would need to fall by an unlikely 1 per cent month on month or more in March for the economy to contract in the first quarter as a whole,” said Paul Dales, chief UK economist at Capital Economics.
“As a result, we can safely say that, after lasting just two quarters ... the recession ended in Q4,” he added.
Friday’s rise in GDP was in line with analysts’ expectations and followed 0.3 per cent monthly growth in January – which itself was upwardly revised from a preliminary figure of 0.2 per cent on Friday.
Services output grew 0.1 per cent in February, while production – including manufacturing, utilities and mining – increased 1.1 per cent. Construction output fell 1.9 per cent.
Rob Wood, economist at the consultancy Pantheon Macroeconomics, predicted that the Bank of England (BoE) would start cutting interest rates from their 16-year high of 5.25 per cent from June.
However, he added, “stronger than expected growth means the Monetary Policy Committee is lacking a clear trigger to act quickly”.
In the three months to February, the economy grew 0.2 per cent compared with the previous three months, marking the first expansion since August 2023.
Jeremy Hunt, the chancellor of the exchequer, said the figures were “a welcome sign that the economy is turning a corner, and we can build on this progress if we stick to our plan”.
Mr Hunt is hoping that growth data published in May will show that Britain has moved out of recession, removing a political weight from the governing Conservatives ahead of the general election expected this year.
Prime minister Rishi Sunak has promised economic growth in a high-profile pre-election pledge. The Conservatives trail Labour by roughly 20 points in opinion polls.
Many economists expect growth to improve as wages rise faster than inflation and mortgage rates fall from last year’s peak.
The auto-enrolment pension scheme seems good on paper, but how will it actually work?
But while inflation is expected to soon fall below the BoE’s 2 per cent target, there are clouds on the horizon for the chancellor.
Market expectations for BoE interest rate cuts in 2024 have retreated, pushing back the prospect of the start of a rate-cutting cycle that Hunt believes will shift public sentiment on the economy.
Despite the two consecutive monthly increases, output was still 0.2 per cent below its level in February last year. In consumer-facing services such as restaurants, shops and hairdressers, it fell 0.1 per cent in February.
That was 5.7 per cent below its February 2020 level, before the pandemic, as the cost of living crisis weighs on activity.
Rachel Reeves, shadow chancellor, said the Conservatives “cannot fix the economy because they are the reason it is broken”.
“After 14 years of Conservative economic failure, Britain is worse off with low growth and high taxes,” she added.
The ONS said growth was widespread across the manufacturing sector with an expansion reported in 11 of the 13 subsectors, with strong growth in car and food production.
Services output also grew, with public transport and haulage, and telecommunications performing strongly, offsetting falls in the health sector.
By contrast, construction output was hit by wet weather and fell. – Copyright The Financial Times Limited 2024
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
