GDP reaction: UK economy remains in fragile state despite retreating further from recession

The latest numbers from the Office for National Statistics (ONS) showed that gross domestic product (GDP) - a measure of total economic output - was estimated to have risen by 0.1 per cent in February. At the same time, the previous estimate for January of 0.2 per cent growth was revised up to 0.3 per cent.

The economy appears to be putting the 2023 recession behind it in the new year. A recession is defined by at least two quarters in a row where the economy contracts, as it did in the second half of 2023.

Despite the data helping to push the FTSE-100 over 8,000 in Friday afternoon trading, business leaders described February’s reading as “disappointing” saying there were few signs of a strong economic rebound. Roger Barker, director of policy at the Institute of Directors, said: “The economy barely grew in February, which suggests that the economy is still in a fragile state. It appears that the UK’s ascent out of the mild technical recession of last year is a relatively shallow one.

“Although the latest figures suggest that the UK is likely to generate positive economic growth in the first quarter, there are few signs of a strong economic rebound. The assertion that the UK economy has decisively turned the corner, as recently asserted by the Prime Minister, is still yet to find confirmation in the data.”

The production side of the economy was strong, according to the ONS data, contributing the most to the UK’s overall growth as output from the sector rose 1.1 per cent in February, compared to a 0.3 per cent fall in January. Construction sector output fell by 1.9 per cent.

Nicholas Hyett, investment analyst at Wealth Club, noted: “Positive UK GDP growth in February, coming together with an upgrade to the January estimate, will do nothing to reassure markets that interest rate cuts are locked in for the first half of this year. Having said that, areas of the economy that are dependent on discretionary spending do look kind of soggy.

“Accommodation and food and drink services both contracted in February and the construction sector is in the doldrums. There are suggestions that wet weather may have played a part here, but an interest rate cut could be quite helpful to those areas of the economy nonetheless.”

Thomas Pugh, UK economist at audit, tax and consulting heavyweight RSM, is expecting growth to rebound to 0.2 per cent in the second quarter, ahead of the 0.1 per cent that the Bank of England had in its latest forecast.

He added: “The economy probably hit its nadir in October and has been gradually recovering since then and will continue to do so. Rising real earnings, tax cuts and lower interest rates will give households disposable income a significant boost in the second half of this year and a recovery in consumer confidence will ensure that most of that increase in income is spent. As a result, we expect a consumer-spending led economic recovery in the second half of the year and into 2025.”