The UK economy posted a stronger-than-expected expansion in February, with gross domestic product rising 0.5% month-over-month, according to data from the Office for National Statistics. The reading significantly surpassed economists' consensus forecast of 0.1% growth and marked the strongest monthly performance since June 2023, when the economy grew 0.6%.
The February data also lifted first-quarter momentum, with GDP now tracking at 0.5% growth through the middle of the quarter, compared to 0.1% in January. This suggests the economy entered the year with more vigor than previously estimated, though analysts caution that the improvement may be short-lived.
Broad-Based Sector Gains
The expansion was supported by gains across multiple sectors. Services and production each grew by 0.5%, while construction output rose by 1.0%, indicating a broad-based recovery. ONS chief economist Grant Fitzner noted that the improvement was driven by several areas within services, including wholesaling, market research, hospitality, and publishing. Car production also rebounded after earlier disruptions.
However, Fitzner added that growth in services and production was partially offset by continued weakness in construction, as well as declines in leasing and intellectual property licensing. Despite the stronger February data, the broader trend remains one of sluggish expansion. The UK economy has grown in only four of the past seven months, reflecting a prolonged period of weak performance stretching back to the global financial crisis.
Energy Shock Clouds Outlook
Economists warn that the February figures may represent a temporary improvement before the full impact of rising energy prices is felt. Oil and gas prices have surged sharply since late February following the escalation of conflict in the Middle East. Benchmark crude and European gas prices have risen more than 30% since the initial strikes on Iran on February 28, raising concerns about inflation and consumer spending.
The International Monetary Fund has already lowered its UK growth forecast for 2026 to 0.8% from 1.3%, reflecting the deteriorating global outlook. The Bank of England has also warned that inflation could be higher than previously expected. While the central bank kept its key interest rate unchanged at 3.75% last month, investors are now pricing in at least one rate hike this year, reversing earlier expectations for rate cuts.
For context, the FTSE 100 has held steady as energy gains offset bank weakness amid Iran tensions, highlighting the market's focus on energy-driven risks.
Analysts Warn of Short-Lived Momentum
Andrew Hunter, associate director and senior economist at Moody's Analytics, said the data points to stronger early-year momentum but warned that conditions have since weakened. "The 0.5% month-over-month jump in UK GDP in February, and slight upward revision to January's data, echoes the earlier improvement in the surveys and suggests the economy had more momentum at the start of this year than previously thought," he said. However, he cautioned that "with those surveys weakening quite sharply in March as the Middle East conflict sent energy prices soaring, this upturn is likely to prove short-lived." Hunter added that the hit to household incomes and confidence would likely keep growth subdued.
Sanjay Raja, Deutsche Bank's chief economist, described the February data as "the calm before the storm" for the UK economy. He noted that first-quarter growth could reach 0.5-0.6% quarter-on-quarter, supported by stronger spending and investment, but warned that this momentum is unlikely to last. "The good news is that the UK likely entered the energy shock on a stronger footing than many expected," he said. "The bad news is that upward GDP momentum won't last. This will likely be the growth before the energy squeeze." He pointed to rising fuel costs, with pump prices up more than 20% since the oil shock, and expected further increases in energy bills over the summer. Businesses may also scale back investment and hiring plans.
Suren Thiru at the Institute of Chartered Accountants in England and Wales said the figures are "unlikely to ease stagflation fears" given that February's surprisingly strong growth has been pushed firmly into the rear-view mirror by the renewed energy and supply chain shocks.
Investors should also monitor related market movements, such as Bloom Energy's recent $40 billion market cap wipeout, which underscores the volatility in energy-linked equities amid geopolitical uncertainty.
This article is for informational purposes only and does not constitute financial advice.
