The UK economy has bucked expectations with a robust 0.4% Gross Domestic Product (GDP) increase in February, marking the second consecutive month of positive expansion following the technical recession of late 2023. This uptick in growth is particularly noteworthy given the recent slowdown in major economies, and its implications for households are significant.
Data from the Office for National Statistics (ONS) highlights a broad-based recovery across key sectors, with the services sector – accounting for approximately 80% of the UK economy – expanding by 0.1% month-on-month. Within this, human health and social work activities, and administrative and support service activities, have contributed to growth. The construction sector has also shown resilience, rebounding from January's decline with a 1.9% increase in output, while manufacturing rose by 1.2% during the month.
This sustained period of economic growth brings welcome relief for households and businesses navigating high inflation and elevated interest rates. While annual inflation remains above the Bank of England's 2% target, these recent figures may influence future monetary policy decisions. The Bank of England has maintained its base interest rate at 5.25% since August 2023, prioritising the fight against inflation. Continued growth, coupled with moderating inflation, could create conditions for potential interest rate cuts later in the year.
For mortgage holders on variable rates or approaching remortgaging, future rate cuts offer a glimmer of hope for lower monthly repayments. Savers, meanwhile, may see a gradual reduction in the attractive interest rates currently available on savings accounts. Investors will be closely monitoring these economic indicators' influence on market sentiment. The FTSE 100 often reacts to economic data, with stronger growth potentially leading to increased investor confidence, though specific company performance remains key.
While these figures are encouraging, the economic outlook remains subject to various global and domestic factors, including geopolitical events, energy prices, and the pace of disinflation. The Bank of England will continue to monitor a range of economic data, including inflation, wage growth, and labour market statistics, before making any adjustments to interest rates.