The UK economy unexpectedly grew in February, but industry commentators have warned that the good news could be cut short as the effects of the Iran war take hold.
The latest figures from the Office for National Statistics showed a 0.5% uptick in monthly GDP in February, far surpassing analysts’ forecasts of 0.1% growth.
Services and production both grew by 0.5% during the month, while construction grew by 1%.
In the three months to February, UK GDP also edged up 0.5%, mainly driven by growth in services and production output.
February’s figures follow a disappointing end to 2025, which saw zero growth in the three months to December, and will likely come as welcome relief to the UK Government, says Rob Morgan, chief investment analyst at Charles Stanley.
“The relatively buoyant start to the year will come as a relief to policymakers as the UK finds itself at the mercy of global energy markets roiled by the effective closure of the Strait of Hormuz,” he said.
However, Morgan warned that the consequences of the Middle East conflict are still unfolding and the lengthy disruption to oil and gas trade may have a negative impact on UK growth going forward.
“The sudden increase in global oil and gas prices threatens to reignite inflation, drain household finances and squeeze company profits, which could put the skids under an encouraging start to the year for the UK economy.
“If energy prices retreat, the UK economy could weather the storm reasonably well and even regain some momentum later in the year. But a higher plateau risks pushing the country towards an unwelcome cocktail of ‘stagflation’ – stubborn inflation and weaker growth – that dents both corporate performance and household budgets,” he added.
Chris Beauchamp, chief market analyst UK at IG, said: “Rachel Reeves and Kier Starmer need to be careful about doing a victory lap after those GDP numbers. A look back at last year shows that April 2025 was also good, but then things took a decidedly poor turn.
“Companies across the UK are warning about the outlook for earnings and consumer spending, and with energy costs hitting consumers hard, today’s good news could turn to dust all too quickly.”
Luke Bartholomew, deputy chief economist at Aberdeen, also warned that the Iran war is likely to alter the picture going forward.
“While it is no doubt of some interest that the stronger survey data from earlier this year did indeed translate into stronger hard data, ultimately this report feels very dated given all that has happened since February.
“As the IMF pointed out, the UK economy was very exposed to the shock from the Iran war as a large energy importer with weakly anchored inflation expectations and an already very soft labour market. So next week’s inflation and employment data will provide an important early sign of how this shock is playing out and have much more influence on the path of interest rates than this report.”
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