The UK economy recorded its most significant monthly expansion in over two years during February, according to official data released by the Office for National Statistics (ONS).
Gross domestic product (GDP) grew by 0.5% for the month, surpassing economist forecasts of a modest 0.1% increase. The ONS also revised its January estimate upward to 0.1% from an initial reading of zero growth.
"The actual figure has smashed expectations," noted Sanjay Raja of Deutsche Bank, while cautioning that the momentum was unlikely to persist.
The services sector, which constitutes more than three-quarters of the UK economy, expanded by 0.5%. This broad category includes travel, retail, hospitality, finance, and real estate. Production output also grew by 0.5%, and construction activity increased by 1.0%.
Over the three months leading to February—a period considered less volatile than single-month figures—the economy grew by 0.5%, up from 0.3% in the previous quarter.
However, this positive data pertains to a period preceding the outbreak of conflict between the US-Israel alliance and Iran on February 28. Economists warn the ensuing energy shock threatens to derail this growth.
The International Monetary Fund (IMF) has already downgraded its 2024 UK growth forecast to 0.8%, down from 1.3% predicted in January. The IMF stated the UK is projected to be the hardest-hit advanced economy due to the war's impact, anticipating fewer interest rate cuts and prolonged effects from higher energy prices.
"Unfortunately, the latest energy price shock has likely pulled the rug on this momentum," said Fergus Jimenez-England, an associate economist at the National Institute of Economic and Social Research (NIESR). He warned of another year of above-target inflation and a softening labour market.
The conflict has driven sharp increases in petrol, diesel, and heating oil prices. While UK households are temporarily shielded by the energy price cap until July, the broader economic ripple effects could push inflation higher, complicating the Bank of England's path to its 2% target.
This shift has already impacted financial markets, with hundreds of mortgage deals withdrawn and average rates climbing to levels not seen since last spring.
Dame DeAnne Julius, a former member of the Bank's Monetary Policy Committee, described the February growth as "a little chink of good light" but emphasized it does not alter the overall stagnant economic picture of the past half-year.
Ruth Gregory of Capital Economics remarked that the "bumper" February growth was "probably already extinguished" by the war, though she found it encouraging that some energy-exposed sectors like mining and transport performed well.
Political responses highlighted the contrasting outlook. Chief Secretary to the Treasury James Murray asserted that growth "only happens when the economy is on solid ground," defending the government's economic plan. Meanwhile, Shadow Chancellor Sir Mel Stride pointed to the IMF downgrade as evidence the economy was "totally unprepared for the recent energy shock."
Retail giant Tesco added to the cautionary tone, stating the conflict was "creating further uncertainty" and making yearly predictions difficult, though it confirmed no immediate issues with food availability.