UK economy grew 0.5% in February, beating economists' expectations by a long shot

The UK economy expanded by 0.5% in February, significantly outperforming economists’ expectations of a 0.1% growth rate, according to preliminary data from the Office for National Statistics. The growth was broad-based, with services and production both increasing by 0.5%, and construction rising by 1%. This marked a rebound from January’s modest 0.1% growth, which was initially reported as flat. The stronger-than-expected performance comes amid concerns over the economic impact of the ongoing conflict in Iran. The International Monetary Fund (IMF) has warned that the UK could suffer the largest hit to growth among major economies due to the Iran war, primarily because of its status as a net importer of energy. The conflict has disrupted oil and gas exports, driving up global energy prices and complicating the UK’s economic outlook. As a result, the IMF has downgraded its UK growth forecast for 2026 to 0.8%, down from 1.3% earlier in the year. Deutsche Bank’s chief UK economist, Sanjay Raja, noted that heightened uncertainty and tighter financial conditions are likely to dampen spending and investment, potentially slowing future output. The war’s impact has also altered expectations around monetary policy. Prior to the conflict, the Bank of England was anticipated to cut interest rates as inflation approached its 2% target. However, rising energy costs have pushed inflation forecasts upward, with economists now predicting a rise to 3.3% in March from 3% in February. This inflationary pressure is expected to prompt the Bank of England to increase interest rates at least once this year, reversing earlier expectations of easing. The latest inflation figures are due to be released on April 22, which will provide further insight into the UK’s economic trajectory amid ongoing global uncertainties.