UK gross domestic product (GDP) grew by 0.1% in February 2022, following 0.8% (revised) growth in January 2022, the Office for National Statistics (ONS) revealed.
Services grew by 0.2% and the sector was the main contributor to February's growth in GDP; this was partially offset by production, which fell by 0.6% and construction, which fell by 0.1%, the ONS said.
Monthly GDP is now 1.5% above its pre-coronavirus (COVID-19) pandemic level (February 2020) but James Smith, who covers developed markets at ING, described the 0.1% increase as “unexciting” and said that the data masked two large, offsetting underlying shifts in the data.
“Firstly – and not that surprisingly – consumer services recorded a strong bounce in what was really the first month of ‘business as usual’ again after Omicron. The bulk of Covid-19 restrictions (including work from home guidelines) had stopped, and card spending at social venues returned to comparable pre-virus levels. Both hospitality and arts/entertainment/recreation bounced by almost 9% compared to January – led by tourism-facing industries, according to the ONS.
“Acting in the opposite direction was health spending, which fell by close to 5%. This category has been driven almost solely by fluctuations in Covid testing levels and vaccine activity over the past year or so. Indeed even including the latest fall, monthly GDP is still over 1% higher than it would have been had health spending hypothetically stayed flat through the pandemic,” Smith added.
Ruth Gregory, the senior UK economist at Capital Economics, observed that the post-Christmas economic slowdown was even quicker than expected.
“The news that the economy was hardly growing at all in February suggests the economy had a little less momentum in the first quarter than we had previously thought, and increases the risk of a contraction in GDP in the coming months as the squeeze on household real incomes intensifies,” she said.
Gregory expected the pace of the recovery to slow once the post-omicron bounce faded and the squeeze on household real incomes intensified but has been surprised at how soon the slowdown kicked in.
“We now think the economy may have grown by 1% quarter-on-quarter in the first quarter as a whole, down from our previous estimate of 1.1% and the risks for our economy to grow by 0.2% quarter-on-quarter in the second quarter are tilted to the downside.
“Even so, with high inflation feeding through into higher price/wage expectations, we doubt this will prevent the Bank of England from raising interest rates further to 1% at its next meeting on 5 May, and to 2% next year,” she added.
Martin Beck, the chief economic advisor to the EY ITEM Club, sounded a bit more optimistic, saying GDP growth in January and February points to a “solid performance” in the first quarter.
However, even he acknowledged that “this is likely to be as good as it gets for some time to come”.
“The end of free COVID-19 tests in England will remove what has been an important prop to output in recent months. Cost of living pressures have intensified, with April seeing the typical household energy bill rise by over 50% and the rise in employees and employers NICs taking effect and June’s additional Bank Holiday for the Queen’s Platinum Jubilee will lower output that month. As a result, GDP growth is likely to slow significantly in Q2,” he predicted.