The UK economy saw a surprising boost in February 2025, growing by 0.5% according to the Office for National Statistics (ONS). This figure was significantly higher than the expected growth of just 0.1%, marking a welcome relief for the government after a 0.1% contraction in January. Liz McKeown, director of economic statistics at the ONS, noted that sectors such as computer programming, telecoms, and car dealerships experienced strong performance, while manufacturing sectors like electronics and pharmaceuticals also contributed positively to the growth. "Across the last three months as a whole, the economy also grew strongly with broad-based growth across services and industries," McKeown stated.
Breaking down the numbers, services grew by 0.3%, production surged by 1.5%, and construction increased by 0.4%. These figures indicate a significant monthly improvement following January's stagnation, providing a boost for Labour and Chancellor Rachel Reeves, who have prioritized economic growth since winning the election last year. However, challenges remain as the government grapples with falling consumer confidence and rising inflation.
On the international front, recent trade tariffs imposed by US President Donald Trump have complicated the UK's economic landscape. Trump announced a blanket 10% tariff on nearly all goods entering the United States, which is expected to adversely affect British exporters. Chancellor Reeves expressed concern, stating, "These growth figures are an encouraging sign, but we are not complacent. The world has changed and we have witnessed that change in recent weeks. I know this is an anxious time for families who are worried about the cost of living and British businesses who are worried about what this change means for them." She emphasized that the government would remain pragmatic as they seek to secure the best deal with the US that serves the national interest.
Adding to the economic pressure, recent tax increases for corporations, alongside surging costs for water, energy, and council taxes, have taken effect in April, raising concerns about future economic performance. The Conservative Party has criticized the Labour government, claiming that their policies have hindered growth. Shadow Chancellor Mel Stride remarked, "Since coming to office, Labour's choices have killed growth stone dead and there is still a long way to go to recover. Hardworking families deserve better than a Government crowing about sluggish growth whilst they will be £3,500 worse off because of the jobs tax."
In February 2025, the value of goods imports rose by £2.8 billion (5.9%), reflecting increases in both EU and non-EU imports. In contrast, the value of goods exports remained stable during the same period, with minimal changes noted for both EU and non-EU countries. Notably, exports of goods to the United States increased by £0.5 billion, marking the third consecutive monthly rise, while imports from the US also saw a slight increase of £0.2 billion.
The total goods and services trade deficit narrowed by £7.5 billion to £1.0 billion in the three months leading up to February 2025, representing the lowest total trade deficit since July 2021. The trade in goods deficit specifically decreased by £3.5 billion to £55.0 billion, while the trade in services surplus is estimated to have widened by around £4.0 billion to £53.9 billion. This narrowing of the trade deficit is attributed to a larger increase in exports compared to imports across both goods and services.
In February 2025, imports from the EU rose by £1.5 billion (6.1%), while imports from non-EU countries increased by £1.3 billion (5.8%). This increase was largely driven by a £0.6 billion rise in imports of machinery and transport equipment, which was linked to increased car imports from Germany, Spain, and Belgium. Meanwhile, imports from non-EU countries were bolstered by a £1.0 billion increase in machinery and transport equipment, including aircraft imports from the United States.
Despite the increase in imports, the value of exports to the EU remained stable, as a £0.6 billion fall in fuel exports was offset by rises in machinery and transport equipment exports. Similarly, exports to non-EU countries also showed minimal change, with a slight rise in machinery and transport equipment exports balancing out declines in other categories.
Early estimates indicate that imports of services fell by £0.2 billion (0.6%) in value terms, while exports of services saw a modest increase of £0.2 billion (0.4%). These trends suggest a complex picture for the service sector, which has shown signs of growth but remains below historical averages. The S&P Global UK PMI for February indicated increasing service sector growth, although new orders for exports declined, marking the highest drop observed since August 2023.
As the UK economy continues to navigate these challenging waters, analysts stress the importance of cautious optimism. The recent growth figures offer a glimmer of hope, but external pressures, particularly from US tariffs and domestic tax increases, pose significant risks to future stability. The government is under pressure to balance immediate economic needs with long-term growth strategies, as families and businesses alike brace for the impacts of rising costs and shifting trade dynamics.
In summary, while February's economic growth is a positive indicator, the overarching economic landscape remains fraught with challenges. Policymakers will need to remain agile and responsive to both domestic and international developments to ensure sustained growth and stability in the months ahead.
