In a positive economic development, official data released on Friday showed that the UK economy grew by 0.5% monthly in February 2025. This figure significantly exceeded analysts’ expectations of 0.1% growth. This growth reflects market optimism and shows some recovery in key economic sectors.
The Office for National Statistics, which released the preliminary figures, confirmed that this expansion was primarily due to the services sector, which grew by 0.3%. In January, the same sector saw weak growth of 0.1%. The data also showed a marked recovery in the production sector, growing by 1.5% in February, following a monthly decline of 0.5% in January.
Construction Sector Recovers
On the other hand, the construction sector recorded monthly growth of 0.4% in February, following a 0.3% decline in January. This demonstrates an improvement in economic activity within this sector, which is one of the main pillars of the British economy. Despite the improvement in economic performance in February, the British economy remains in a state of suspense due to global and domestic challenges that could affect the sustainability of this growth.
Response in the British Pound Market
In response to these data, the pound rose against the US dollar by 0.6%, reaching $1.3047. This rise came at a sensitive time for financial markets, as some sources had expected the British economy to remain in recession or even contract.
The previous month, the British economy recorded a slight contraction of 0.1% in January, which was later revised to show that economic growth had stabilized for that month. Undoubtedly, the data released this week has confirmed optimism about the British economy’s ability to recover after a period of slowdown.
Challenges and threats from US tariffs
Global challenges continue to impact the British economy, particularly in light of trade tensions between the United States and the United Kingdom. The British economy faces a potential threat as a result of the tariffs imposed by US President Donald Trump. Reports indicate that the UK could face a 10% increase in tariffs on its exports to the United States, a move that could negatively impact commercial sectors.
The United States is Britain’s largest trading partner, accounting for approximately 17% of its total international trade. If reimposed tariffs are reciprocal, the British economy will be significantly impacted, especially given the rising tensions in trade relations between the two countries. However, the UK hopes that an agreement will be reached that avoids the imposition of these new tariffs, which could have a positive impact on the economic outlook.
Bank of England Forecasts and Interest Rate Decisions
Despite recent positive economic data, the economic situation in the UK remains complex. The Bank of England faces significant challenges in making interest rate decisions. According to experts, the Bank of England is likely to cut interest rates by 25 basis points at its next meeting in May 2025, bringing the base rate down to 4.25%.
Suren Thiru, Director of Economics at the Institute of Chartered Accountants in England and Wales, emphasized that uncertainty stemming from US tariffs may have a greater impact than positive economic data on the Bank of England’s decision-making. He noted that these tensions could heighten concerns about the resilience of the British economy, making a rate cut in May more likely.
Lowered Economic Growth Forecasts
In the same context, the UK Office for Budget Responsibility (OBR) lowered its economic growth forecast for next year. In its recent report, it revised its 2025 growth forecast from 2% to 1%.
Trade with the United States
Trade between the UK and the US continues to be significantly affected. According to recently released data, total trade between the two countries reached £294.1 billion in the four quarters ending Q3 2024, a 2.3% decrease compared to the same period last year. Of this total, UK exports to the US accounted for approximately £182.6 billion, while imports from the US amounted to £111.5 billion.
Foreign Direct Investment
On the other hand, data indicates that foreign direct investment (FDI) between the UK and the US declined in 2023. That year, outward FDI from the UK to the US amounted to £494.1 billion, representing 26.7% of total UK FDI. In contrast, inward FDI from the US to the UK amounted to £708.1 billion, representing 34.1% of total inward FDI.
Given the current situation, the UK economy faces several challenges. Economic pressures are mounting due to external factors such as the trade war with the United States and fluctuations in global interest rates. At the same time, recent economic data offers some hope that the British economy may be on the road to recovery. However, this depends on how the British government handles these challenges in the coming weeks and months.
Overall, despite the positive figures in February, the British economy continues to face numerous obstacles. Risks range from the potential impact of US tariffs to global economic challenges. Under these circumstances, the outlook remains uncertain, and it may be necessary to monitor developments in global financial markets and their relationship with interest rates to determine economic growth trends in the coming months.
