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February’s growth shows UK probably on “a stronger footing” than expected before energy shock
February’s GDP report shows “the calm before the storm” that is now hitting the UK economy from the Middle East, reports Sanjay Raja, Deutsche Bank’s chief economist.
Raja says February GDP “smashed expectations” by coming in with “a thumping 0.5%” growth month-on-month this morning.
He says it shows forecasters were too pessimistic about UK growth at the start of the year, and predicts we’ll see decent growth of up to 0.6% in the first quarter of this year.
Our nowcast models now show Q1-26 GDP growth returning back to our original forecast from the start of the year: 0.5-0.6% q/q, reflecting some positive payback after a very sluggish second half in 2025. Given today’s data, spending looks stronger than anticipated. And firms may also be investing more than we thought heading into the Iran conflict.
But the impact of higher energy prices, and weaker business investment, will hurt growth this year, he adds:
The good news is that the UK likely entered the energy shock on a stronger footing than many expected. Q1-26 GDP growth will likely hit more than double the quarterly rate many forecasters expected, also lifting annual GDP growth projections. The bad news is that upward GDP momentum won’t last. This will likely be the growth before the energy squeeze.
Households will have already started to feel the impact of the Iran energy shock, impacting disposable incomes and discretionary spending. Pump prices are up over 20% since the oil shock occurred. And dual fuel bills are due to rise by a similar amount over the summer. Businesses will also likely be pulling back investment plans, hiring plans, and lowering wage growth as a result. As such, expect more sluggish growth into Q2-26 (and beyond).”
Key events
Capital Economics: growth my now slow to a crawl
The UK’s “bumper growth in February” has probably already been largely extinguished by the Middle East crisis, warns Capital Economics.
Ruth Gregory, deputy chief UK economist at Capital Economics, says:
GDP rose by a bumper 0.5% m/m in February but March’s activity PMIs suggest the war in Iran has already all-but extinguished growth. And in our baseline scenario we think GDP growth will slow from 1.4% in 2025, perhaps to just 0.7% this year.
Gregory fears growth will “slow to a crawl in the coming quarters”, saying:
The stronger February outturn than we expected probably meant that GDP grew by 0.6% q/q or so in Q1, rather than 0.3% q/q as we previously thought. But the leap in energy prices means there is unlikely to be much growth after that.
[PMIs are a survey of purchasing managers, which showed the biggest jump in costs since 1992 last month]
Anna Leach, chief economist at the Institute of Directors, warns that the UK is ‘uniquely vulnerable’ to the energy shock:
“Revisions to GDP show that, ahead of the conflict in the Middle East, the economy was picking up from a dip in activity last summer. However, as the conflict drags on, reports continue to grow of escalating energy costs, paused decision making and concerns over potential shortages of critical inputs.
The UK’s tight financing conditions, high initial starting point for inflation, uncompetitive energy costs and low fiscal space, make us uniquely vulnerable to the situation.
JP Morgan: oil price spike could mean the UK economy’s return to growth is short-lived
Scott Gardner, investment strategist at J.P. Morgan Personal Investing fears the UK’s growth pick-up may not last, due to the Iran war.
“The UK economy beat expectations in February, showing strong growth during the month before the war with Iran broke out. While this is a positive reading, the uncertain situation in the Middle East and resulting spike in oil prices could mean this return to growth is short-lived.
“In February, industrial production and services rose sharply. The rise was partly offset by manufacturing activity contracting. Retail sales fell after a stronger than expected January while the property market remains subdued.
“Looking ahead, the conflict in the Middle East and escalation in the Strait of Hormuz has dented the growth outlook for the UK economy. Oil prices had already been rising in recent months, but the latest spike could be especially painful for businesses and consumers through higher costs and elevated interest rates.
The extent to which the conflict hits UK growth this year will hinge on the duration of the disruption in the Strait of Hormuz and persistence of the oil price shock, Gardner adds.
February’s growth shows UK probably on “a stronger footing” than expected before energy shock
February’s GDP report shows “the calm before the storm” that is now hitting the UK economy from the Middle East, reports Sanjay Raja, Deutsche Bank’s chief economist.
Raja says February GDP “smashed expectations” by coming in with “a thumping 0.5%” growth month-on-month this morning.
He says it shows forecasters were too pessimistic about UK growth at the start of the year, and predicts we’ll see decent growth of up to 0.6% in the first quarter of this year.
Our nowcast models now show Q1-26 GDP growth returning back to our original forecast from the start of the year: 0.5-0.6% q/q, reflecting some positive payback after a very sluggish second half in 2025. Given today’s data, spending looks stronger than anticipated. And firms may also be investing more than we thought heading into the Iran conflict.
But the impact of higher energy prices, and weaker business investment, will hurt growth this year, he adds:
The good news is that the UK likely entered the energy shock on a stronger footing than many expected. Q1-26 GDP growth will likely hit more than double the quarterly rate many forecasters expected, also lifting annual GDP growth projections. The bad news is that upward GDP momentum won’t last. This will likely be the growth before the energy squeeze.
Households will have already started to feel the impact of the Iran energy shock, impacting disposable incomes and discretionary spending. Pump prices are up over 20% since the oil shock occurred. And dual fuel bills are due to rise by a similar amount over the summer. Businesses will also likely be pulling back investment plans, hiring plans, and lowering wage growth as a result. As such, expect more sluggish growth into Q2-26 (and beyond).”
Moody’s: upturn likely to be short lived
The UK’s growth acceleration in February is likely to be “short-lived”, due to the Iran war, warns Andrew Hunter, associate director and senior economist at Moody’s Analytics:
“The 0.5% month-over-month jump in U.K. GDP in February, and slight upward revision to January’s data, echoes the earlier improvement in the surveys and suggests the economy had more momentum at the start of this year than previously thought.
However, with those surveys weakening quite sharply in March as the Middle East conflict sent energy prices soaring, this upturn is likely to prove short lived.
The hit to household real incomes and renewed blow to confidence is likely to keep economic growth subdued over the coming months and we have lowered our growth forecasts for this year in our April baseline.”
Britain’s construction sector had a volatile winter, mainly due to a drop in activity in December.
Monthly construction output is estimated to have increased by 1.0% in February, twice as fast as the 0.5% growt recorded in January.
But in December, activity fell by 1.3% – due to a drop in new work.
UK production output growth was mainly driven by growth in mining and quarrying (up 3.9%), and electricity, gas, steam, and air conditioning supply (up 1.5%).
Water supply; sewerage, waste management, and remediation activities also grew in February 2026 (up 0.2%).
But there was a 0.1% fall in manufacturing output – due to a drop in manufacture of transport equipment (although this did growth strongly in the December-February quarter).
How the services sector helped UK economy to smash forecasts
“Widespread growth” across the UK services sector helped the economy to expand strongly in February, by an impressive 0.5%.
Today’s GDP report shows that 12 of the 14 subsectors of the services economy grew during the month, helping services to grow by 0.5%.
“Administrative and support service activities” made the largest contribution (up 2.0%), due to a pickup in hiring activity.
The second largest positive contribution came from wholesale and retail trade; repair of motor vehicles and motorcycles (up 0.7%).
Professional, scientific, and technical activities also contributed to the growth, with a rise of 0.8% in February 2026.
Chart: How UK growth was accelerating before Middle East conflict
ONS: Growth increased further in the three months to February
The UK economy also grew by 0.5% in the three months to February, helped by the end of the cyber-attack disruption at Jaguar Land Rover last autumn.
That’s up from 0.3% growth in the three months to January.
ONS chief economist Grant Fitzner says:
“Growth increased further in the three months to February led by broad-based increases across 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.
“Growth in services and production was partially offset by another fall in construction, albeit at a slower rate than previously, with leasing and intellectual property licencing also continuing to contract.”
UK economy smashes forecasts with 0.5% growth in February
Newsflash: The UK economy was growing much faster than expected before the Iran war jolted global activity.
UK GDP rose by 0.5% in February, new data from the Office for National Statistics shows. That’s much stronger than the 0.1% growth the City had expected.
The ONS reports that services and production both grew by 0.5%, and construction grew by 1.0% in February.
January’s GDP data has been revised up too – to show 0.1% growth, rather than stagnation.
In normal times would be a significant boost to Rachel Reeves.
However, this data is somewhat historic, as the Middle East conflict is reshaping the prospects for the global economy this year, driving up energy and fuel prices, and borrowing costs, and hurting confidence.
Earlier this week the IMF cut its forecast for UK growth in 2026 to 0.8%, down from 1.3%.
China’s economy beats forecast in first quarter
Economic growth in China has accelerated in the last quarter, in an encouraging start to the year for Beijing.
China’s gross domestic product (GDP) grew by 5%, year on year, in the first quarter of 2026, data from the National Bureau of Statistics (NBS) released today shows.
That’s 0.5 percentage points faster than in the fourth quarter of 2025,
The NBS says “The national economy got off to a good start”, explaining:
“The growth of production and supply accelerated, market demand continued to improve, employment was generally stable, market prices picked up moderately, and high-quality development advanced with new and positive momentum.”
Reeves gives more energy bill support to businesses as Iran war pushes up costs
Richard Partington
Rachel Reeves has announced an expansion of support for the most energy-intensive UK businesses, as they face soaring bills as a result of the Middle East conflict.
The chancellor said the long-promised British Industrial Competitiveness Scheme (BICS) would be expanded to cover 10,000 companies, up from the 7,000 originally announced.
The scheme, which the government says will cut companies’ bills by up to 25%, will not come into operation until next year, although in a significant concession Reeves said support would then be backdated to this month.
The announcement was welcomed by business groups, but some criticised the fact the money would not arrive until next April, urging Reeves to bring support forward as they face a looming crisis as a result of the ongoing closure of the strait of Hormuz.
Introduction: UK February GDP report coming up
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Economic data inevitably has a shelf life, before it’s overtaken by new numbers. But it’s unusual to be out of date even before it’s released!
That’s the situation with the UK’s February GDP report, due to be released at 7am this morning.
It is expected to show some modest growth across the economy, with GDP forecast to have risen by 0.1% (according to the City consensus). Forecasts range from 0% to 0.3% growth.
But the conflict in the Middle East, which began at the end of February, means the UK economy is already in a new world – of higher energy prices, food inflation fears, supply chain disruptions, and geopolitical tensions.
The economy stalled in January, with no growth recorded (although this could be revised today). That, Deutche Bank’s Sanjay Raja says, was a “disappointed”, adding:
With the economy stagnating to start the year, we expect a rebound in February. We don’t discount an upward revision to January GDP either. Our nowcast models point to both a potential upward revision to January and some further upward momentum in February.
What do we see for February GDP? We see GDP expanding by 0.2% m-o-m, lifted by broad-based momentum across the services, production and construction sectors.
The GDP data comes as chancellor Rachel Reeves continues to attend the IMF and World Bank’s spring meeting in Washington DC, where she yesterday described the Iran war as a “mistake” that has destabilised the global economy.
The agenda
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7am BST: UK GDP report for February 7am
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10am BST: Eurozone inflation report for March
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1.30pm BST: US weekly jobless
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5pm BST: IMF holds debate on the global economy
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