UK February GDP: Strong Data, Obsolete Context
UK gross domestic product expanded 0.5% month-on-month in February, the Office for National Statistics reported Thursday, comfortably outpacing the 0.1% growth economists polled by Reuters had expected. Services and production each grew 0.5%, while construction expanded 1%. The figure also revised the broader picture for early 2026: the ONS initially estimated January GDP had flatlined, but Thursday's data showed it had in fact grown 0.1%.
Despite the headline beat, analysts were immediate in cautioning against reading too much into the figures. George Brown, senior economist at Schroders, told CNBC he suspected residual seasonality was inflating the February number, adding that conditions on the ground were likely weaker than the data implied. He pointed to a deteriorating labour market, with the unemployment rate rising above 5%, as evidence the economy was not as robust as the February print suggested.
Iran conflict overrides the data
The US and Iran launched military operations against one another on 28 February, just as the February GDP measurement period was closing. That conflict has since become the dominant variable in UK macro forecasting. The IMF warned this week that the UK could face the largest growth hit from the Iran war of any major economy, and has revised its 2026 UK growth forecast down to 0.8% from the 1.3% it projected in January.
As a net energy importer, the UK is particularly exposed to oil and gas price shocks stemming from disruption to Middle Eastern supply. Before the conflict, the Bank of England had been expected to cut rates as inflation approached its 2% target. Economists now expect UK inflation to accelerate to 3.3% in March from 3.0% in February, with the latest reading due on 22 April, and are pricing in at least one rate hike this year.
Bank of England likely on hold
Patrick O'Donnell, chief investment strategist at Omnis Investments, said the February GDP data would have minimal bearing on Bank of England policymakers at their meeting at the end of April. With the market split between 25 and 50 basis points of hikes by year-end, O'Donnell argued the BoE was more likely to remain on hold given that bank rate is still considered to be in restrictive territory. Sanjay Raja, chief UK economist at Deutsche Bank, said higher uncertainty, tighter financial conditions and weakening sentiment would all weigh on output in coming months.
