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The UK economy's growth lagged behind expectations in February, data from the Office for National Statistics showed Monday, increasing the possibility the country is heading into a recession.
GDP grew by 0.1% month-on-month in February, slowing from 0.8% growth in January, and coming in behind market consensus - according to FXStreet - for 0.3% growth.
The Office for National Statistics did note, however, that the UK economy is now 1.5% above its pre-coronavirus level in February 2020.
The stats body said services output grew by 0.2% and was the main contributor to February's growth in GDP; which was partially offset by industrial production, which fell by 0.6% and construction output, which fell by 0.1%.
The growth from the services sector - which is now 2.1% ahead of its February 2020 level - was driven by accommodation & food service activities which rose by 8.6%; however, this was offset by human health & social work activities which fell by 3.8%.
Industrial production, which fell 0.6%, was forecast to rise by 0.4% in February - and now sits 1.9% below its February 2020 level. It was held back by weakness in all four production sectors, with manufacturing falling by 0.4%, mining & quarrying by 3.2%, electricity & gas by 0.6%, and water supply & sewerage by 0.4%.
Construction output was forecast to grow 0.5% but slipped 0.1%. The ONS noted it was the first monthly decrease since October 2021.
‘Anecdotal evidence from returns received for the Monthly Business Survey for Construction and Allied Trades suggested the storms experienced between 16 and 21 February 2022 resulted in projects being delayed, as more working days were lost on sites and premises than normal for this time of the year,’ the ONS explained.
The pound was quoted at $1.2992 early Monday, dropping from $1.3021 shortly before the announcement, and down from $1.3020 at the London equities close on Friday.
Capital Economics senior UK economist Ruth Gregory said February's growth was ‘measly’.
‘The news that the economy was hardly growing at all in February suggests the economy had a little less momentum in the first quarter than we had previously thought, and increases the risk of a contraction in GDP in the coming months as the squeeze on household real incomes intensifies,’ she continued.
‘The pace of the recovery was already going to slow once the post-Omicron bounce faded and the squeeze on household real incomes intensified. But we hadn't expected it to slow so much so soon. We now think the economy may have grown by 1.0% quarter on quarter in Q1 as a whole, down from our previous estimate of 1.1% quarter on quarter. And the risks for our economy to grow by 0.2% quarter on quarter in Q2 are tilted to the downside.’
Despite the disappointing print, Capital Economics still expects the Bank of England to hike interest rates to 1.00% at its next meeting on May 5, and to 2.00% next year.
Separately, the ONS also reported the country's total trade balance in February was a £9.26 billion deficit, narrowing from the £12.84 billion deficit in January, but widened from £2.11 billion in February 2021.
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