February’s high rate of GDP growth surprises many
The UK economy surpassed analyst’s expectations with its 0.5% growth in February. Growth was widespread across services and manufacturing, and marked the fastest monthly pace since March 2024. The GDP figures predate President Trump’s tariff announcements on April 2. This strong rate of growth is in contrast with the weak business and consumer sentiment that followed the October 2024 Budget, which left businesses bearing most of the £40bn in tax increases.
The 4 per cent government departmental spending increase in real terms this year is likely to support wage and economic growth, although this will be tempered by the uncertain trading and investment environment.
Payrolled employment decreased by 8,000 between January and February according to the latest ONS data. Preliminary figures for March indicated a larger fall of 78,000, or 0.3 per cent of those in payrolled employment. If confirmed, this would be the biggest fall since May 2020. Vacancies also fell below pre-pandemic levels in March this year, for the first time since the spring of 2021. The figures provide tentative indications how businesses have begun to respond to rises in business taxes and the minimum wage from April 2025 by reducing headcount. Jobs growth could be hit further due to US tariff policies.
By contrast, earnings growth rates remained strong, with annual growth in average weekly earnings, excluding bonuses, at 5.9 per cent in the three months to February, up from 5.8 per cent in the three months to January.
Overall business confidence has decreased, with US trade policies beginning to make an impact
To get a good idea of where the economy is heading, we use leading indicators. These are measures and reported on one month after collection.
The latest NatWest Regional PMI (Purchasing Managers Index) results were out on 10 April. Worth checking them out for more detail here. A PMI score over 50 indicates growth and improvement; under 50 indicates contraction.
- The S&P Global UK Services PMI was 52.5 in March 2025, down from 53.2 in February, with the Manufacturing PMI at 44.0, down from 46.9 in February. Manufacturing business optimism is now at its lowest level since November 2022, with a steep drops in output, new orders and new export business
- London and South West led regional growth with upturns seen in South East and Yorkshire & Humber during March
- Challenges experienced in January and February for Scotland and Northern Ireland remain
- Of the 12 UK regions, only five posted above 50. The average across the UK for March was 51.5. Market conditions remain challenging and we could see continued challenges in the coming months
The Natwest regional PMI results are consistent with the BCC quarterly survey of business conditions, where fewer firms reported increased sales, investment and confidence; and the CBI Business Optimism Index which sank to -47 in Q1 2025, from -24 in Q4 2024.
The UK GfK Consumer Confidence Index edged up by 1 point to -19 in March 2025, marking its second consecutive monthly increase after readings of -22 in January and -20 in February. The latest figure also exceeded market expectations of -21 but remained in negative territory, reflecting ongoing consumer caution.
