Gross domestic product (GDP) in the UK ticked up 0.1% in February and its January reading was revised up from 0.2% growth to 0.3%, according to the Office for National Statistics.
These positive readings follow two consecutive quarters at the end of last year in which the UK economy shrank, putting the country in a technical recession.
By sector, construction output dropped 1.9% in February after increasing 1.1% in January. For the three months to February, construction fell 1%.
Production, however, turned its 0.3% drop in January to 1.1% growth in February, buoying the three-month increase to 0.7%.
Ed Monk, associate director at Fidelity International, said while the technical recession seems to be coming to an end, it “won’t change the feeling that there is very little momentum in the economy”.
“If today’s reading is positive for growth overall it may end up being bad news for both borrowers and financial markets, in the short-term at least,” he said. “Both are waiting for the Bank of England to cut rates but wage rises and now better performance in parts of the economy are adding to inflationary pressures.
“Expectations of rate cuts this year have softened and markets now expect only two cuts before 2025. It seems you can have a recovering economy, or you can have the relief of lower rates – but you can’t have both at the same time.”
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This growth in the UK economy comes amidst a flurry of predictions for rate cuts this year, while the Bank continues a balancing act with inflation. In the March reading, year-on-year inflation sat at 3.4%. The next inflation reading is set to be released on 17 April.
Michael Field, European market strategist at Morningstar, said: “Inflation in the UK remains higher than in the Eurozone, at 3.4%, and far above the Bank of England’s 2% target; putting the Bank under pressure to keep interest rates high, at least for another few months.
“However, central bankers are walking a tightrope in balancing the danger of persistent inflation with a weak economy. Interest rates sit at 16-year highs, giving central bankers some room for manoeuvre at least.”
While the UK economy has moved into the green for the start of the year, an ongoing struggle within the construction industry has been the rain, with England experiencing the wettest six months on record.
Stephen Payne, portfolio manager on the global equity income team at Janus Henderson, said: “Industrial production was stronger than expected, continuing its recent pick-up, whilst construction activity was hampered by the very wet weather.
“Growth for the first quarter is now set to come in stronger than the Bank of England’s anaemic forecast, but it is still only a modest recovery that does not threaten the on-going disinflation in the economy. Hence the stage is set for rate cuts, given base rates are comfortably above the rate of nominal GDP growth.”
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Danni Hewson, head of financial analysis at AJ Bell, remarked that while the growth is positive, it remains “pretty pitiful” compared to the US.
“The impact of rain on GDP explains why we Brits are so pre-occupied with the weather,” he said. “All those downpours dampened spirits and kept shoppers tucked up in their homes. Construction work slowed once again and the rain undoubtedly played a part here, but it wasn’t the whole story.
“Tensions in the middle east have pushed the price of oil over $90 a barrel and motorists are keenly aware of how quickly that pushes up prices at the pump. After the last year shoppers also understand the impact that can have on what goes into their basket, even if many have a few more pennies thanks to the cut in NI and the rise in the National Living Wage.
“The jigsaw investors in particular have been working to complete seems to have changed shape mid-play and everyone is running to keep up.”
