Economy growth hit two year high in February – industry reaction

The UK economy grew by 0.5% in February, according to the Office for National Statistics (ONS), the biggest monthly rise in more than two years.

The ONS said the services sector, which accounts for more than three-quarters of the economy, grew by 0.5%. Production output also grew by 0.5%, while construction rose by 1%. The ONS also revised its estimate for January up to 0.1%, having previously said there had been no growth in the opening month of the year. In the three months to February, GDP grew by 0.5% – up from 0.3% in the three months to January.

The figures cover a period before the outbreak of the US-Israeli war with Iran on 28 February, which has caused a major energy shock, and experts warn of the risks of a global recession if it is prolonged.

Commenting on today’s GDP figures for the three months to February, ONS Chief Economist Grant Fitzner said “Growth increased further in the three months to February led by broad-based increases across services.

“Within services, growth was driven by wholesaling, market research, hospitality, and publishing, which all performed well in the three months to February. Meanwhile car production recovered from the effects of the autumn cyber incident.

“Growth in services and production was partially offset by another fall in construction, albeit at a slower rate than previously, with leasing and intellectual property licencing also continuing to contract.”

Anna Leach, Chief Economist at the Institute of Directors, said“Revisions to GDP show that, ahead of the conflict in the Middle East, the economy was picking up from a dip in activity last summer. However, as the conflict drags on, reports continue to grow of escalating energy costs, paused decision making and concerns over potential shortages of critical inputs. The UK’s tight financing conditions, high initial starting point for inflation, uncompetitive energy costs and low fiscal space, make us uniquely vulnerable to the situation.

“It is welcome to see the Government pushing forward with expanded and backdated support to energy intensive industries through the British Industrial Competitiveness Scheme. As the Government considers what broader support for business might look like should the crisis persist, it makes sense to consider the plight of those in wholesale, retail, accommodation, food and construction who are all flagging their exposure through complex global supply chains, critical inputs and energy costs. More broadly, a re-think of the UK’s energy market structure is needed, balancing renewable energy delivery, incentives to electrify and the role of UK fossil fuels.”

Mike Randall, CEO at Simply Asset Finance, said “A sharp increase in GDP compounds the positive economic growth we saw in January, further reflecting the optimism of businesses at the start of year. While the months ahead may start to look different, one thing holds true – certainty is the fuel that keeps growth moving. When businesses have clarity, they invest, plan and generally feel more confident.

“With global conflict now weighing down on markets and driving up costs, we can’t afford to lose these green shoots of growth. It’s important we act now to ensure conditions remain supportive for businesses – regardless of the ups and downs – backing firms with the funding, clarity and direction they need to thrive.”

Ben Jones, CBI Senior Lead Economist, said “Stronger than expected growth in the three months to February suggests the economy was on a slightly firmer footing at the start of the year, though the broader picture remains one of subdued momentum.

“Even before the war in the Middle East, the recovery was far from secure. Rising energy costs and heightened uncertainty risk reinforcing the now familiar trend of weak growth and high inflation.

“In light of this, the government deserves credit for introducing backdated payments to the British Industrial Competitiveness Scheme and expanding eligibility, ensuring more firms are positioned to benefit from much-needed support with higher energy costs.

“The focus must remain on what further action the government can take to tackle the cost of doing business, including finding workable solutions on the Employment Rights Act and using the tax system to unlock investment – that will help boost competitiveness and mitigate rising financial pressures on businesses and households.”

Suren Thiru, ICAEW Chief Economist, said “These 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 caused by the Middle East conflict.

“February’s growth will have been followed by a more miserable March with skyrocketing fuel prices and supply chain chaos sparked by the Iran war likely to have stalled economic activity, despite an early Easter boost to sectors like retail.

“Even if a peace deal is reached soon, a severe spell of stagflation looks locked in with surging energy costs expected to trigger sizable falls in investment and consumer spending, likely leaving growth weaker than many – including the IMF –expect.

“Though the Iran war has shifted policymakers’ focus more towards interest rate rises than reductions, a prolonged policy pause remains most likely, particularly as the likely squeeze on growth from the conflict should help dampen inflation over time.”