UK economy expands by 0.5% in February, more than expected

The U.K. economy grew by a higher-than-expected 0.5% month-on-month in February amid a jump in the services output, official data showed on Friday.

Analysts had projected a monthly gross domestic product hike of 0.1% in February, according to LSEG data.

The Office for National Statistics, which published the provisional figures, said a 0.3% expansion in the services sector had driven the surprise jump in growth. In January, services had recorded a 0.1% monthly rise.

Production output saw a substantial recovery in February, notching 1.5% month-on-month growth compared to the monthly contraction of 0.5% seen in January. Construction output also staged a recovery in February, adding 0.4% on the month after falling 0.3% in January.

The British pound jumped against the dollar after the data release, rising 0.6% against the greenback to trade at $1.3047 by 8:08 a.m. in London.

In January, an early estimate showed the U.K. economy unexpectedly shrank by 0.1% on a monthly basis. That figure was later revised upward to show that economic growth was flat in January.

The U.K. economy has struggled to gain momentum over the past year. ONS data showed earlier this year that Britain’s GDP expanded by 0.1% in the fourth quarter of last year, after flatlining in the three months prior.

Friday’s figures are released as the U.K. braces for the economic impact of new 10% tariffs on its exports to the United States.

British lawmakers had been hoping to avoid the full force of U.S. President Donald Trump’s tariffs regime, with America accounting for 17% of Britain’s international trade in the year to September 2024 — making it the Britain’s largest trading partner.

Trump’s suspended reciprocal tariffs, if reinstated once their pause ends this summer, would slap the U.K. with additional 10% duties on British goods.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said that the uncertainty created by the tariffs would likely override Friday’s better-than-expected economic data, when it comes to the Bank of England’s decision whether to trim interest rates next month.

Markets are currently pricing in a 25-basis-points interest rate cut from the Bank of England in May, according to LSEG data, which would bring the central bank’s core interest rate down to 4.25%.

“Though activity rebounded strongly as services and manufacturing output rallied, February’s figures have been pushed firmly into the background by the financial market bedlam caused by Trump’s tariff announcements,” Thiru said.

“The greater global financial and economic instability caused by the US tariff announcements makes a May rate cut look more likely than not, by further fuelling rate setters’ concerns over the underlying resilience of the UK economy.”

Meanwhile, major welfare spending cuts and a greater tax burden on businesses have created concerns about the outlook for the economy.

Last month, the U.K.’s Office for Budget Responsibility halved its growth forecast for the U.K., slashing its outlook from 2% to 1% growth in 2025.