UK economic growth slows down to 0.1% in February: Tougher times ahead?

Britain's Gross Domestic Product grew by just 0.1% in February, a significant reduction from 0.8% in January, data from the Office for National Statistics (ONS) revealed on Monday.

The latest figures put the monthly real GDP for February at 1.5% above its pre-coronavirus levels in the corresponding month (February 2020).

Sector-wise growth

The main contributor to February's GDP was the services sector, which grew by 0.2%. This growth was largely aided by the declining wave of Omicron cases of coronavirus and the subsequent easing of COVID-19 restrictions by the government. The key contributors within this sector were the accommodation and food service activities, followed by the administrative and support service activities. Notably, the Services sector showed 0.8% growth in January.

On the other hand, the growth in the sector was largely restricted by human health and social work activities. The main driver for this was human health activities, witnessing a fall back from the NHS Test and Trace, as well as vaccination programs in the months of December and January.

The production sector, meanwhile, fell by 0.6% and witnessed negative growth in all four of its sub-sectors. This came after the sector saw 0.7% growth in January 2022. This negative growth in production  was largely fuelled by the manufacturing sector, registering a 0.4% decline. Besides, the electricity, gas, steam, and air conditioning supply saw a reduction of 0.6% in February 2022. In terms of overall numbers in the three months to February, production increased by 1.0%.

Similarly, the construction output fell by 0.1% in February 2022 after it saw an increase of 1.6% in January. This output was 1.1% more than the pre-COVID-19 level in February 2020. New construction work saw a slight rise of 0.1% in February, while the repair and maintenance work fell by 0.5%.

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How the growth compares with previous data, and what caused the decline?

In January 2022, the country's GDP recovered with an increase of 0.8% after falling by 0.2% in the previous month. All sectors registered positive growth in January. The services sector was up by 0.8%, production by 0.7%, and manufacturing by 1.1%.

The key reasons behind the weak growth are a fall in manufacturing activity, along with other concerns, including soaring inflation.

Economists have downgraded the growth forecasts for UK's economy for 2022 in the wake of the rise in inflation due to increasing prices of commodities and energy. This rise in inflation is also partly linked to Russia's invasion of Ukraine, which pushed the oil prices to an all-time high and led to global chaos.

On the other hand, the negative growth of 5.4% in the manufacture of transport equipment was led entirely by the decline in the production of cars as manufacturers continue to struggle with sourcing components amid the supply chain disruption and the global shortage of semiconductors.

The fall in the construction sector has been attributed to the delay in construction projects caused by storms Eunice, Dudley and Franklin.

The road ahead

Experts predict that the economy is likely to weaken further in the coming months as high energy prices continue to push inflation up. Moreover, the huge pressure on the economy from Russia's invasion of Ukraine is likely to be reflected in the numbers for March 2020.

Meanwhile, reacting to the development, the UK stock market also ended on a weaker note on Monday. The blue-chip FTSE 100 index closed 0.53% lower, with investors turning cautious due to lower-than-expected GDP numbers for February 2022, with concerns growing about the effects of the Ukraine war amid multi-decade high inflation rate.