The UK economy stalled unexpectedly in February when strikes crippled the public services but is still likely to perform better than the Bank of England has expected.
(Bloomberg) — The UK economy stalled unexpectedly in February when strikes crippled the public services but is still likely to perform better than the Bank of England has expected.
Gross domestic product was unchanged from January instead of eking out the 0.1% growth analysts had expected, the Office for National Statistics said Thursday. The figure for January was revised up to 0.4%.
Together, the readings bring output in the UK further above its pre-pandemic level and suggest the economy is unlikely to shrink in the first quarter. That further reduces the risk of a recession but leaves the UK on track for an extended period of stagnation.
Chancellor of the Exchequer Jeremy Hunt said the economy was looking “looking brighter than expected.” In a Bloomberg Television interview in Washington on Wednesday night, he said the UK will do “significantly better” than the International Monetary Fund projected, potentially setting the stage for an election next spring.
Read more: UK Will Beat IMF’s Dismal Growth Forecasts, Chancellor Hunt Says
Assuming no revisions, the economy probably grew 0.1% in the first quarter unless the figure for March shows a contraction of more than 0.2%, the ONS said.
A contraction of 0.6% would be required for GDP to fall 0.1% on the quarter, as forecast by the Bank of England. That would be a bigger fall than in December, when consumer sentiment was weaker and the country suffered the most days lost due to strikes since 2011.
“While a flat economy is not usually grounds for celebration, there are some encouraging signs in today’s data,” said Kitty Ussher, chief economist at the Institute of Directors. “Were it not for the industrial action that took place in the public sector, the economy overall would have grown.”
What Bloomberg Economics Says …
“The reading probably won’t come as a big surprise to the Bank of England, but it’s the upcoming CPI and jobs market releases that will be central to decision making at the next policy meeting. We expect data to fall in line with the BOE’s forecast, giving it enough reason to hold rates steady in May at 4.25%.”
—Ana Andrade, Bloomberg Economics. Click for the REACT.
George Lagarias, chief economist at accountancy firm Mazars, said the lack of growth was “bad news” for the UK.
“Growth in the UK is stagnating and has fallen behind its developed market peers,” he said. “We expect the UK to continue to underperform the other G-7 economies for the time being, however we acknowledge that the short-term global economic outlook has materially improved in the past couple of months.”
Weak February figures reflect the impact of widespread industrial action during the month. Services output fell 0.1%, hit by walkouts by teachers and civil servants. Manufacturing, which economists had thought would deliver small growth, also showed no change in the month.
Strikes intensified during the month, with teachers in England staging a national walkout on Feb. 1 in their dispute over pay and regional strikes on other days. Other action involved rail workers, university staff, nurses, paramedics and civil servants.
February also was unusually warm, reducing output from utilities.
Education output slumped 1.7% during the month, making it the largest contributor to the fall in services output. Public administration was the second largest contributor, falling by 1.1%.
These declines were partially offset by growth in six of the 14 services sub-sectors. The largest contributors to this were human health and social work activities and other service activities, which grew by 0.3% and 2% respectively.
Despite the fall in the services sector, consumer-facing services grew by 0.4% in February, driven by retail which expanded at the fastest rate since October. However consumer-facing services are still 8.9% below their pre-pandemic level, while other services have clawed back losses to be up 2.2%.
“A combination of upward revisions in GDP data and an improvement in global economic conditions could help the UK economy avoid a recession this year,” said Yael Selfin, chief economist at KPMG UK. “While this will provide relief for policymakers, the outlook for growth in the medium-term remains relatively weak by historical standards.”
Read more:
- UK Will Beat IMF’s Dismal Growth Forecasts, Chancellor Hunt Says
- UK’s Hunt Hints Growing Economy Sets Stage for Polls Next Spring
- Bailey Says BOE Financial Stability Issues Will Not Affect Rates
- UK Property Surveyors See Sales Pickup for First Time in a Year
–With assistance from Elina Ganatra.
(Updates with Hunt interview in fourth paragraph.)
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