UK economy jumped above forecasts before Iran war

GDP rose in February, the Office for National Statistics said

The UK economy was growing ahead of forecasts before conflict in the Middle East broke out, official figures have revealed. The Office for National Statistics (ONS) said GDP rose by 0.5 per cent during February.

Over the three months leading up to March, the month that saw trade in essential goods such as oil across the Strait of Hormuz come to a standstill, the UK economy expanded by 0.5 per cent.

Economists surveyed by Bloomberg anticipated that monthly growth would reach 0.1 per cent while the quarterly figure would stand at 0.2 per cent.

The ONS said the services sector grew 0.5 per cent over three months and production increased 1.2 per cent while construction fell by two per cent, as reported by City AM.

“Growth increased further in the three months to February led by broad-based increases across services,” said Grant Fitzner, chief economist at the ONS.

“Within services, growth was driven by wholesaling, market research, hospitality, and publishing, which all performed well in the three months to February.”

Chief secretary to the Treasury James Murray said: “Growth only happens when the economy is on solid ground. That’s why in a changing world our plan to restore stability, boost investment and deliver reform is the right one to build a more stronger more resilient Britain.

“At the IMF meetings in Washington the Chancellor has set out how we will go further and faster to boost Britain’s competitiveness and build a stronger, more resilient economy, keeping costs down for families and businesses and taking back control of our energy costs as today we cut bills by up to 25 per cent for 10,000 British businesses.”

Economists have suggested that the unexpected figure would soon become yesterday’s news, with the Institute of Chartered Accountants in England and Wales’ Suren Thiru indicating the ONS would shortly reveal data for a “miserable March”.

The statistics will offer Treasury officials some encouragement as they frantically assess the consequences of the Iran war on the UK’s economic prospects.

However, this week has proved particularly challenging for the Chancellor as she has faced criticism over a shortfall in defence funding.

Her visit to Washington this week for International Monetary Fund meetings was also overshadowed by bleak forecasts for the UK economy.

The organisation lowered growth projections for this year by 0.5 percentage points, more significantly than any other G7 nation.

The IMF had previously forecast the UK economy to expand by 1.3 per cent in 2026, a more sluggish rate than last year, but it has now projected a GDP increase of merely 0.8 per cent.

The National Institute of Economic and Social Research’s Fergus Jimenez-England stated the war had “likely pulled the rug on this momentum”.

WPI Strategy chief economist Martin Beck said: “Even in the event of a benign outcome, the damage from the past six weeks won’t simply unwind immediately.

“The implication is that the UK faces a more stagflationary outlook than previously anticipated, with weaker growth and more persistent inflationary pressure over the second half of the year.”

UK inflation is also set to be the joint-highest this year alongside the US, projected to be 3.2 per cent.

The US economy was also expected to suffer from inflation of 3.2 per cent while other G7 countries were set to have lower price growth levels this year.

The findings followed similarly damning figures from the Paris-based OECD. Economists suggested the UK economy would have the second lowest rate of growth in the G7 and second highest level of inflation.

Reeves said the “best economic policy” was to get involved countries in the Middle East to de-escalate the war in Iran.

“We are a net importer of gas, which does mean that we are impacted by the conflict in the Middle East, which is why I do come with this message loud and clear, along with the 10 other countries that have signed this statement today, that we want to see a de-escalation of the crisis.”