UK economy flat with no growth in February

Impact of education and public services strikes wipes out boost in retail and construction

Analysts believe that subdued consumer activity will hold back economic growth in the UK for some time to come. AP

The UK economy showed no growth in February as the country once again narrowly avoided falling into a technical recession, according to the Office for National Statistics.

Some growth in retail and construction was offset by a fall in activity in the services sector, which was dragged down by education and public administration, both of which saw strikes during the month.

“Construction grew strongly after a poor January, with increased repair work taking place,” said ONS director of economic statistics Darren Morgan.

“There was also a boost from retail, with many shops having a buoyant month.

“These were offset by the effects of civil service and teachers' strike action, which impacted the public sector, and unseasonably mild weather led to falls in the use of electricity and gas.”

Analysts had expected GDP to grow by 0.1 per cent in February, month-on-month, according to a forecast by Pantheon Macroeconomics.

'Brighter than expected'

Looking at the broader picture, GDP grew by 0.1 per cent in the three months to February.

“The economic outlook is looking brighter than expected — GDP grew in the three months to February and we are set to avoid recession thanks to the steps we have taken,” Chancellor Jeremy Hunt said.

Mr Hunt had said on Wednesday that the UK economy would do “significantly better” than the bleak two-year outlook from the International Monetary Fund.

He dismissed the IMF’s forecast that the UK economy would shrink by 0.3 per cent this year and expand just 1 per cent next year.

While that forecast was an improvement on a previous IMF prediction of a 0.6 per cent shrinkage, it still leaves the UK at the bottom of the economic growth table of the Group of Seven nations.

“We will do better than that. Our forecasts are significantly better,” Mr Hunt told Bloomberg Television on Wednesday.

But analysts believe that subdued consumer activity will hold back economic growth in the UK for some time to come.

“Even if the UK avoids a recession this year, the pressures on household incomes will continue to sap the economy of any real momentum in the near-term.,” said Alpesh Paleja, lead economist at the Confederation of British Industry.

“While lower energy bills and falling inflation should set the stage for an uplift in the second half of the year, risks to the outlook remain to the downside.”

Kitty Ussher, chief economist at the Institute of Directors, said there was some positivity in the GDP numbers.

“While a flat economy is not usually grounds for celebration, there are some encouraging signs in today’s data,” she said.

“The consumer-facing sectors — notably retail — grew in the month despite bearing the brunt of the cost-of-living crisis, and the construction sector performed strongly.

“In fact, were it not for the industrial action that took place in the public sector, the economy overall would have grown.”

Susannah Streeter, head of money and markets at Hargreaves Lansdown agreed.

“Industrial strife is piling on pressure just when the economy needs it the least, as stagflation takes hold, and this will put the government under extra pressure to come up with resolutions,” she said.

Inflation tests Tesco

Meanwhile, the latest figures from the UK's largest retailer, Tesco, clearly showed the battering effect that high inflation has had on UK companies and consumers.

Tesco, which has a 27 per cent share of the UK grocery market, posted a 6.3 per cent fall in its adjusted annual profit to £2.49 billion ($3.11 billion), after a year of absorbing the effects of inflation in an attempt to keep prices lower and remain competitive.

“It's been an incredibly tough year for many of our customers, and we have been determined to do everything we can to help,” Tesco chief executive Ken Murphy said.

Tesco is forecasting flat profits for its new financial year, which began last month.

“Supermarkets are needing to run increasingly hard to stand still, particularly against a backdrop of cost-pressed consumers, high food inflation and a ferociously competitive environment,” said Richard Hunter, head of markets at Interactive Investor.

“For Tesco, this is a challenge which has been embraced, partially made possible by the sheer scale and size of its operations, although inevitably this has come at a cost.”

Monthly industry data has shown Tesco performing well against its traditional rivals, although it has been losing market share to German-owned discounters Aldi and Lidl, who are continuing to open new stores across the UK.