(Refiles to remove extraneous word from the headline) LONDON, April 16 (Reuters) - Britain's economy grew by a better-than-expected 0.5% in the three months to February, official figures showed on
UK economy surged ahead of Iran war, but energy shock to test resilience
Britain's Economic Performance and Emerging Challenges
By Andy Bruce
LONDON, April 16 (Reuters) - Britain's economy put on a burst of growth in February, suggesting it was in slightly better shape before the start of the Iran war than many economists had feared, official figures showed on Thursday.
Stronger Than Expected GDP Growth
Gross domestic product expanded 0.5% month-on-month in February, the biggest increase since January 2024, the Office for National Statistics said. Economists polled by Reuters had forecast a much more modest reading of 0.2%.
Risks from the Middle East Conflict
While the figures are likely to cheer finance minister Rachel Reeves, economists said Britain remained vulnerable to the fallout from the Middle East conflict, being highly dependent on imported energy and prone to higher inflation than peers.
"Unfortunately, the latest energy price shock has likely pulled the rug on this momentum, with another year of above-target inflation and a softening labour market likely to come," said Fergus Jiminez-England, associate economist from the National Institute for Economic and Social Research.
IMF Forecasts and Economic Vulnerability
Britain suffered the sharpest cut to economic growth forecasts for large rich economies by the International Monetary Fund due largely to the Iran war, in forecasts published on Tuesday.
Services Sector as a Growth Driver
SERVICES SECTOR SPURRED FEBRUARY ECONOMIC GROWTH
"Growth increased further in the three months to February led by broad-based increases across services," ONS chief economist Grant Fitzner said.
"Meanwhile car production recovered from the effects of the autumn cyber incident."
Quarterly Growth and Statistical Concerns
Economic growth for the three months to February was 0.5%, the ONS said, putting Britain's economy on track for a conspicuously strong first quarter, for a third year running.
That pattern has led to suspicions among some economists that the ONS' process of seasonal adjustment has gone awry following unusually large swings in output during the COVID-19 pandemic - something the ONS rejects.
"We're confident in our figures and seasonal adjustment processes," an ONS spokesperson said on Thursday, adding that statisticians had looked thoroughly at the issue.
Debate Over Seasonal Adjustment
James Smith, economist at ING, said he still doubted whether the ONS had fully accounted for the influence of the last period of high inflation in its seasonal adjustment process, and the timing of price increases.
"We wrote in our reaction to the January data that February or March could see a strong bounce back for exactly this reason," Smith said.
"Suffice to say, all of this is old news anyway, given the crisis we find ourselves in today."
Trade Deficit and Import Trends
Separate ONS data showed Britain's total trade deficit, excluding the volatile movements of precious metals, rose in inflation-adjusted terms in February to 5.627 billion pounds ($7.62 billion), its highest since November 2024.
The widening was driven by imports rising to their second-highest reading on record, after December 2022.
($1 = 0.7385 pounds)
(Additional reporting by Suban Abdulla, graphic by Pasit Kongkunakornkul, editing by Hugh Lawson and Ros Russell)
