UK Economy on ‘Stronger Footing’ than Expected Before Energy Shock After February Growth Surge – Business Live

Why It Matters

The data highlights a fleeting growth surge that could be quickly offset by the energy price shock, tightening household budgets and curbing corporate investment, which may force policymakers to reassess fiscal and monetary support for the UK economy.

Key Takeaways

• February GDP rose 0.5% m/m, double consensus forecast
• Energy shock from Iran could halve Q1 growth momentum
• Q3‑Q4 2025 GDP revisions now show zero growth
• FTSE 100 gained 0.24% as markets digest data
• Tesco warned profit outlook amid rising energy costs

Pulse Analysis

The unexpected 0.5% month‑on‑month rise in February’s GDP underscores a short‑lived bounce‑back for the UK economy. Services, led by administrative and support activities, contributed the bulk of the expansion, while construction posted a 1.0% surge after a weak start to the year. This performance nudged the three‑month growth rate to 0.5%, prompting analysts at Deutsche Bank and Capital Economics to revise Q1‑26 growth to roughly 0.5‑0.6% quarter‑on‑quarter, well above earlier forecasts.

However, the upside is tempered by the emerging energy shock stemming from the Iran conflict. Oil prices have already climbed more than 20%, and dual‑fuel bills are projected to rise similarly over the summer. Households face squeezed disposable incomes, and businesses are scaling back investment, hiring, and wage growth. The UK government’s expansion of the British Industrial Competitiveness Scheme to 10,000 firms, offering up to a 25% cut in energy bills, aims to cushion the impact, but the broader macro‑environment remains vulnerable to further price spikes and supply‑chain disruptions.

Equity markets have absorbed the mixed signals with modest optimism: the FTSE 100 edged up 0.24% as investors priced in the stronger February data while remaining wary of the looming slowdown. Retailers such as Tesco flagged profit pressure despite an 8.5% earnings rise, citing uncertainty over the conflict’s duration. With the IMF trimming its 2026 UK growth forecast to 0.8% and analysts expecting Q2 growth to fall to around 0.7%, policymakers will need to balance inflationary pressures against the risk of a deeper recession, making the next set of economic releases critical for market direction.