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UK economy slows to just 0.1% in February

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·Finance Reporter, Yahoo Finance UK
·3-min read
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UK economy British Chancellor of the Exchequer Rishi Sunak leaves Downing Street on the day of the Spring Statement, in London, Britain, March 23, 2022. REUTERS/Peter Cziborra
Chancellor Rishi Sunak welcomed the fact the UK economy stayed in positive territory. Photo: Peter Cziborra/Reuters

The UK economy barely expanded in February as the cost of living crisis started to take hold, according to the Office for National Statistics (ONS).

UK GDP grew by just 0.1% in February due to weaker activity in the health sector and supply chain disruptions. The figure falls short of the 0.3% growth predicted by most analysts and is down from the 0.8% growth registered in January.

The economy now stands at 1.5% larger than its pre-pandemic level.

Read more: Cost of living crisis: Top tips to save hundreds of pounds on supermarket bills

Despite a rise in tourism, the economy was dragged down by a fall in manufacturing production, which slipped by 0.4%, as motor manufacturers struggled to find parts, and construction, which fell by 0.1%, with storms disrupting activity, the ONS said.

Car production, which has suffered from the shortage of semiconductors, saw output fall over 5%.

Activity at COVID-19 Test and Trace and vaccination rollout programmes also dipped.

Growth was seen in the hospitality and leisure sectors as Omicron infection numbers eased compared to December and January.

The services sector is now 2.1% above its pre-coronavirus level, while construction is 1.1% higher and production is 1.9% below, the ONS reported.

Darren Morgan, ONS director of economic statistics, said: “The economy was little changed in February with the easing of restrictions for overseas travel — and increased confidence in booking holidays in the UK — triggering strong growth in travel agencies, tour operators and hotels.”

The figures largely predate Russia’s invasion of Ukraine, which pushed up energy and commodities prices as well as costs for UK businesses and consumers.

Chancellor Rishi Sunak said: “I welcome the positive growth seen across the economy in February, which continues to recover from the pandemic, boosted by the support we provided.

“Russia's invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding robustly against Putin's unprovoked invasion.

“We are supporting families with the cost of living with £22bn ($28.6bn) of support this financial year, and building a high productivity, low tax economy, including through a tax cut worth up to £1,000 for half a million small businesses.”

Read more: Buy-to-let investors snapping up one in every 10 houses sold in UK

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), commented: “While economic output continued to rebound in February, the significant slowdown in growth indicates that the UK economy was losing steam even before the impact of Russia’s invasion of Ukraine.

“Tourism-related industries and accommodation services recorded the strongest improvements in the month as the end of Plan B restrictions, and reduced concerns over Omicron, supported activity.

“However, this was mostly offset by a significant drop in NHS Test and Trace services and vaccine activity as well as declines in industrial and construction output.”

Watch: How does inflation affect interest rates?

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