The UK economy recorded a stronger-than-expected growth of 0.5% in February 2025, offering a welcome boost to business confidence and easing immediate fears that President Trump’s global tariff policy would constrain British output. Figures released by the Office for National Statistics (ONS) showed broad-based expansion across services, production, and construction. The result far outpaced economists’ forecasts of 0.1% growth and followed a revised estimate of 0.0% growth in January (originally reported as a 0.1% contraction).
The services sector, which accounts for around 80% of UK economic activity, grew by 0.3%, supported by robust performance in computer programming, telecoms, and car dealerships. Meanwhile, production output rose by 1.5%, with electronics, pharmaceuticals, and car manufacturing all showing strong gains. Construction output increased by 0.4%.
Chancellor Rachel Reeves welcomed the figures as an “encouraging sign” that the economy is recovering but cautioned that “there is no room for complacency.”
However, longer-term economic risks remain in focus. UK government bond yields have surged to their highest level since 1998, driven by turmoil in the US sovereign debt market. If yields remain elevated, they could erode the chancellor’s estimated £9.9 billion in fiscal headroom, limiting options for future tax or spending interventions.
Trump’s tariffs—which now include a 125% levy on Chinese imports—continue to cast a shadow over the global trade outlook. While the UK has avoided the steepest duties, economists warn that any escalation could weaken external demand and squeeze supply chains.
At the same time, rising UK inflation may complicate the monetary policy outlook. The inflation rate is expected to rise from 2.8% to 3.75% by the summer, potentially limiting the Bank of England’s scope to cut interest rates, currently at 4.5%.
Markets had priced in a possible rate cut as early as next month, particularly if Trump’s tariffs had a sharper-than-expected effect on growth. However, February’s stronger GDP print may delay any immediate policy shift from Threadneedle Street.
For now, businesses and investors will take heart from the data — but many will continue to keep a close eye on international developments and domestic inflation in the months ahead.
