The good growth news is not set to last

- Feb. GDP surges past forecasts on broad-based services strength
- Economists caution against overinterpreting Q1 momentum
- Energy shock and Hormuz disruption set to drive inflation higher
- IMF downgrade highlights UK vulnerability among G7

By Harry Daniels
LiveSquawk News
@HarryDaniels71

16 April 2026 | 11:30 GMT

LONDON – A stronger-than-expected expansion of the UK economy in February will be welcomed by households and policymakers alike, but is likely to carry limited weight against a deteriorating global backdrop.

Data from the Office for National Statistics showed GDP rose 0.5% in February, comfortably above the 0.1% consensus and an upwardly revised 0.1% in January (initially reported as flat), following 0.1% growth in December.

In the three months to February, the economy expanded by 0.5%, two-tenths faster than the previous three-month period and ahead of the 0.2% forecast.

Grant Fitzner, chief economist at the ONS, said the underlying picture was driven by broad-based strength in services. “Within services, growth was driven by wholesaling, market research, hospitality and publishing, which all performed well in the three months to February. Meanwhile, car production recovered from the effects of the autumn cyber incident.”

Services output rose 0.5% in the three months to February, up from 0.3% previously. Production increased 1.2% over the period, though this marked a slowdown from 1.7% in the three months to January.

Partially offsetting the gains, construction output fell 2.0%, following a 2.8% contraction previously.

Commenting on the data, Capital Economics’ deputy chief UK economist Ruth Gregory noted that some of the sectors most exposed to rising energy costs showed resilience. “Admittedly, accommodation and food services output, as well as manufacturing, fell in February by 0.3% m/m and 0.1% m/m, respectively. But other energy-intensive sectors such as mining and quarrying, transport and storage, wholesale and retail, and arts, entertainment and recreation posted strong gains.”

Despite the upbeat headline, economists were quick to urge caution.

“If it sounds too good to be true, then it probably is,” said ING’s James Smith. “That’s our initial reaction to the apparent surge in UK GDP in February. It’s consistent with a pattern seen since 2022, where growth has tended to come in stronger in the first quarter than over the rest of the year.”

Another reason for caution is that the data are backwards-looking. On 28 February, the US and Israel launched a bombing campaign on Iranian military and government sites. In response, Iran’s Islamic Revolutionary Guard Corps targeted regional oil infrastructure and US bases, driving a sharp rise in crude prices.

Upward pressure on energy costs has been compounded by the effective closure of the Strait of Hormuz, a critical transit route for global oil and gas shipments.

“All of this is old news anyway, given the crisis we now face,” Smith added. “Growth is likely to slow into the summer as inflation rises towards 4% beyond July.”

Earlier this week, the IMF and World Bank lowered their World Economic Outlook projections, cutting growth forecasts across major economies. The UK was singled out as the most exposed among the G7 to the fallout from the conflict.

The IMF now forecasts UK growth of 0.8% in 2026, down from 1.3% in its January update, and 1.3% in 2027, compared with a previous estimate of 1.5%.

Capital Economics’ Gregory said the stronger February data likely points to GDP growth of around 0.6% q/q in Q1, up from an earlier estimate of 0.3%. “The surge in energy prices means there is unlikely to be much growth beyond that,” she said. “We expect growth to slow to a crawl in the coming quarters, with real GDP rising by around 0.7% this year. In an adverse scenario, growth in 2026 could be as low as 0.3%.”