UK economy grows as GDP rises 0.5% – what it means for YOUR money
THE UK economy grew by 0.5% in the second month of this year and more than expected.
The Office for National Statistics (ONS) said Gross Domestic Product (GDP) went up by half a percentage point in February.
It comes after the economy showed no growth in January, revised figures published today reveal.
Economists had been forecasting growth in February to be at 0.1%.
The 0.5% rise in February came mostly due to growth in the services sector, although all sectors showed growth, the ONS said.
Monthly services output went up by 0.3% and also grew by 0.6% in the three months to February.
Production output rose by 1.5% following a fall of 0.5% in January and grew 0.7% in the three months to February.
Meanwhile, construction output grew by 0.4% in the second month of the year following a fall of 0.3% in January.
GDP is one of the main indicators used to measure the performance of a country’s economy.
When it goes up, it means the economy is doing well. When it falls, it means the economy has shrunk.
Liz McKeown, director of economic statistics at the ONS, said: “Within services, computer programming, telecoms and car dealerships all had strong months, while in manufacturing electronics and pharmaceuticals led the way and car manufacturing also picked up after its recent poor performance.
“Across the last three months as a whole, the economy also grew strongly with broad-based growth across services industries.”
The latest figures from the ONS will come as a major boost to the government which has targeted growth as one of its key priorities.
However, it’s worth worth bearing in mind, the ONS’ three monthly GDP figures are considered more important than its monthly data.
Stephen Kinnock, a labour health minister, welcomed the latest GDP figures from the ONS, but insisted more needed to be done to boost the economy.
He told Times Radio this morning: “Obviously, the stability that this Government, the new Government that we’ve had since July, has brought is helping investors to make plans for the longer term.
“That helps drive up investment, which drives up employment, drives up growth, and that is good news, of course.
“There is still a very long way to go.”
February’s GDP figures also come after a week of instability for markets across the globe following Trump’s so-called “Liberation Day”.
The US president slapped tariffs on a number of countries across the world sending markets into freefall.
Trump has since paused tariffs on most countries barring China, but the instability could signal bad news for UK growth over the longer term.
A hike to employer National Insurance contributions (NICs) and the national minimum wage in April could also stunt growth.
Chancellor Rachel Reeves said: “These growth figures are an encouraging sign, but we are not complacent.
“The world has changed and we have witnessed that change in recent weeks.
“I know this is an anxious time for families who are worried about the cost of living and British businesses who are worried about what this change means for them.
“This Government will remain pragmatic and cool-headed as we seek to secure the best deal with the United States that is in our national interest.”
What it means for your money
GDP measures the economic output of companies, individuals and Governments.
If it is rising steadily, but not too much, it’s a sign of a healthy and prosperous economy.
This is because it usually means people are spending more, the Government gets more tax and businesses get more money which then means pay rises for workers.
When GDP is falling, it means the economy is shrinking which can be bad news for businesses and workers who face pay cuts or even losing their job.
The Bank of England (BoE) also uses GDP and inflation as key indicators when determining the base rate.
This decides how much it will charge banks to lend them money and is a way to try to control inflation and the economy.
If GDP is low, the BoE cuts its base rate in order to encourage people to spend and invest money.
If it is higher, the BoE may keep its base rate higher in order to keep inflation in check.
The BoE’s Monetary Policy Comittee (MPC), which sets the base rate, is next meeting on May 8.
However, with the global financial backdrop uncertain, the MPC could be forced into cutting base rate to encourage growth.
Suren Thiru, economics director at the Institute of Chartered Accountants, said: “The greater global financial and economic instability caused by the US tariff announcements makes a May rate cut look more likely than not, by further fuelling rate setters’ concerns over the underlying resilience of the UK economy.”
What is the base rate and how does it affect the economy?
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank’s rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country’s GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially – the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises – consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower – but their bills could drastically increase when it’s time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
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