The UK economy has done something we’ve not seen very much of in recent times: it sprang a surprise on the upside. A big one.
According to new figures from the Office for National Statistics (ONS), UK plc grew by a balmy 0.5 per cent in February. The Reuters poll of City economists had predicted growth of just 0.1 per cent.
Even with the usual caveats – that this is just the first estimate, monthly figures are volatile, and the ONS hasn’t covered itself in glory of late – there is no denying that this is a very good number indeed, and a ray of sunshine breaking through the perma-clouds hanging over chancellor Rachel Reeves’s office.
It compares with a fat zero in January – itself revised up from minus 0.1 per cent – with every sector contributing something. But the big noise was made by the makers: production output grew by 1.5 per cent, reversing a fall of 0.5 per cent in January, which dragged down the economy in that month.
Nobody likes a party-pooper, but facts are facts, and the uncomfortable fact about February’s numbers is that they line up with a global phenomenon: manufacturers around the world moved into high gear, with the intention of sending as much product across the Atlantic as they could to beat Trump’s tariffs. The boost the British economy received from an estimated £500m jump in exports to the US is inevitably going to unwind.
“There might be a negative ‘post-tariff’ effect for a while as manufacturers have produced goods to ship to the US to beat the tariffs,” warned Investec’s chief economist Philip Shaw.
When will this start? The first charge to affect the UK was announced by Trump on 10 February and landed on 12 March. That was the 25 per cent levy imposed on imports of steel (also aluminium). Steelmakers thus had an all too brief window to get their exports in.
It was followed by a 25 per cent tax on imports of cars, which came into effect on 2 April. On 5 April, a 10 per cent across-the-board tariff was imposed on exports from the UK and the rest of the world, with the US president’s list of baddies – especially China – facing bigger hits.
The real Trump-inspired nasties will feed into the April figures rather than those in March. But that doesn’t necessarily mean no impact in March as a result of our old friends: sentiment and confidence.
Trump has hit both with his tiny fists, following up by kicking them while down. It isn’t just the blizzard of announcements. It is the chaos of his policymaking, too; the Trump hokey-cokey (in, out, shake it all about) that has seen some tariffs imposed and then suspended and then imposed again.
Business leaders are apt to respond to this sort of thing by focusing on cash conservation, putting their investment plans on hold and hiding under their desks while praying it ends as soon as possible.
This may impose a drag on March’s figure, with the April one affected by the full force of the tariffs themselves. You can sum February up like this: Nice surprise, pity the tariffs are going to muck it up. But by how much?
Here’s the good(ish) news. Shaw described the 10 per cent levies on the UK’s non-auto and steel exports as “not great, but not disastrous either” – although he says the auto and steel tariffs are certainly “onerous”. Score one for classic British understatement. However, crucially he said: “The economy should keep expanding, albeit slowly.”
Most forecasters agree, including the likes of the Bank of England and the Office for Budgetary Responsibility which have pencilled in slow growth, but not no growth. Before this all got started we were expecting a plod but with the potential for a bit better later in the year. That plod is going to be more laboured than feared.
In response to the GDP announcement, Reeves said: “These growth figures are an encouraging sign, but we are not complacent. The world has changed and we have witnessed that change in recent weeks.”
In private, she will be aware that the economy isn’t doing anything like enough to cheer up the country, much less supply the cash the government needs to make meaningful improvements to people’s lives and the services they rely on, such as the NHS.
Trump’s tariffs themselves, and the chaos that has followed, will make her job much harder. Improving relations with our other trading partners – especially with the EU – would be a good way to change that. The benefits would be significant. Pity the government in which Reeves serves lacks the courage.
