Factories power UK economic rebound ahead of US tariff threat
The UK economy recorded its strongest monthly growth in nearly a year in February, boosted by a rise in factory output as exporters rushed to ship goods ahead of incoming US trade tariffs.
Gross domestic product (GDP) rose by 0.5% in February, rebounding from a flat January that was revised up from an initial estimate of a 0.1% decline, the Office for National Statistics (ONS) said on Friday. The figure surpassed economists’ forecasts of 0.1% growth, with broad-based gains across manufacturing, services, and construction.
Bloomberg reported that the unexpected surge was led by a 2.2% jump in manufacturing production - its largest monthly increase since November 2022. Analysts attribute the spike to UK manufacturers accelerating shipments to the US before new tariffs, announced by the White House in March and April, take effect.
“Judging from the industries that saw the biggest pickup in February (textiles, clothing, wood, pharmaceuticals, metals, electrical manufacturing, autos, and machinery), we think there are clear signs that there may be some inventory build-up in the run-up to the April tariff announcement,” said Sanjay Raja, chief UK economist at Deutsche Bank.
Exports to US rise
Services, which account for the majority of UK output, rose by 0.3%, while goods exports to the US increased by 7%, marking the third consecutive monthly rise. The ONS suggested “the rises in exports to the US following the election in November 2024 could indicate some evidence of changing trader behaviour”.
The data places the UK economy on track for positive growth in the first quarter, supported by forecasts from the Bank of England (BOE) and the Office for Budget Responsibility. The ONS said a contraction in March would need to exceed 2.1% to offset gains made earlier in the quarter.
The pound strengthened following the report, climbing 0.2% to US$1.2998 and extending its longest winning streak since November. Market expectations for interest-rate cuts this year eased slightly, though investors still anticipate at least three quarter-point reductions.
Chancellor of the Exchequer Rachel Reeves welcomed the latest figures as an “encouraging sign” but acknowledged the uncertain outlook. “The world has changed,” she said, noting it is an “anxious time for families”.
Economists warn of short-lived gains
The Labour government, which took office last summer, has faced headwinds in reviving economic momentum. February marked only the fourth month of GDP growth since July 2024. Though output is now 0.9% higher than when Labour assumed power, broader economic challenges persist.
The BOE has warned that rising global trade tensions may weigh on growth prospects, while the OBR last month cut its 2025 forecast in half, projecting just 1% growth.
Despite a temporary pause in US tariff hikes announced this week, economists remain cautious. “A May rate cut looks more likely than not,” said Suren Thiru of the Institute of Chartered Accountants in England and Wales in an interview with Bloomberg, noting the heightened risks to the UK’s economic resilience.
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