The U.K. economy remained healthy before the onset of the U.S.-Iran war, according to a slew of numbers released by the Office for National Statistics on Thursday.
Robust Growth: The real GDP growth for the three months to February was a better than expected 0.5%, up from the three months to November. This marked an acceleration from the revised 0.3% growth (up from previously reported 0.2% growth) for the three months to January. Economists had anticipated 0.2% growth.
The largest contributor to growth was the services sector, which grew 0.5%. Production output jumped 1.2% but construction output fell 2%.
On a year-over-year (YoY) basis, GDP rose 0.8% in the three months to February.
In February, GDP rose by 0.5%, accelerating from an upwardly revised 0.1% growth for January. The consensus estimate was for a 0.1% rise for the month. YoY, February GDP growth was 1% compared to the 0.7% pace for January and the 0.6% consensus.
The strong growth, though offering a reason to cheer, should be taken with a pinch of salt. The war impact began to feed through the supply chain to the global economy only in March.
Commenting on the growth, ING Developed Markets Economist James Smith said the February output surge was in line with a trend dating back to 2022 where growth has typically been stronger in the first quarter than across the rest of the year.
That said the economist noted that the strong data tally with the positive momentum suggested by purchasing managers’ indices for January and February. “But most of the latest surge, we suspect, is noise,” he said.
Goods Deficit Widen: A separate data showed that goods imports climbed by 4.7% month-over-month in February, but exports fell by 1.5%.
For the three months to February, goods and services deficit narrowed by 0.3 billion pounds to 2.8 billion pounds, compared with the three months to November 2025. The 1.3 billion-pound increase in the services surplus helped offset some of the 1 billion-pound increase in the goods deficit.
Implications for Rate: ING’s Smith expects a growth slowdown into the summer as inflation rises toward 4% beyond July. Higher energy prices are expected to add to the recent increases in unemployment at a time when corporate pricing power is depressed, the economist said.
“This is why we’re still not convinced the Bank of England will hike rates this year. It’s a close call, which becomes closer still if the disruption hasn’t materially improved by the time of the June meeting.”
For now, the economist expects rates to remain unchanged at 3.75% throughout 2026.
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