UK economy slowed by more than expected in February – business live | Business

The three storms which hit the UK in mid-February weigned on the construction sector, leading to the 0.1% drop in output.

The ONS reports that Storms Dudley, Eunice and Franklin caused delays at construction sites, and led some projects to be suspended.

This was because more working days were lost on sites and premises than normal for this time of the year. However, some businesses reported a positive impact as they picked up repair and maintenance work caused from storm damage.

UK growth slowed in February because falling health spending counterbalanced the bounces as Omicron restrictions were lifted, says James Knightley of ING:

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.

Health spending is likely to be the number one driver of these GDP figures over the next couple of months, Knightley adds:

That’s especially true for April’s figures, given that the NHS stopped free mass testing for the general public at the end of March. In other words, expect a negative GDP figure for April.

The NHS Test and Trace and Covid-19 vaccination programme detracted 1.1 percentage points from the UK’s gross domestic product (GDP) growth in February, the ONS reports:

This was driven by large falls in both NHS Test and Trace (falling 47%) and the vaccination programmes (falling 65%).

It is important to note, though, that this follows particularly high levels of activity in December and January reflecting the vaccination booster campaign and high rates of infection from Omicron.

Economist Samuel Tombs of Pantheon Macroeconomics says health output could keep dropping for some months:

Alpesh Paleja, CBI Lead Economist, warns that the government isn’t doing enough to help firms to cope with the cost of living squeeze and disruption caused by the Ukraine war.

“Following the bounce at the start of the year, it’s no surprise that economic growth slowed in February. Near-term challenges to the outlook have ramped up since, with a growing cost-of-living crunch set to weigh on growth.

“Businesses are also grappling with headwinds from the Ukraine conflict, which is exacerbating cost pressures and supply chain disruption.

“It’s clear that growth impetus remains underwhelming. While the Government took some steps to sustain confidence in our economy in the Spring Statement, they don’t do enough to tackle the current challenges facing firms.

“The only enduring response to these is a relentless campaign for economic growth and productivity, through measures such as capital allowances, R&D reforms and a revised apprenticeship levy.”

The UK is entering a ‘prolonged period’ of much weaker growth as the cost of living crisis hits the economy, warns Suren Thiru, head of economics at the British Chambers of Commerce.

“While economic output continued to rebound in February, the significant slowdown in growth indicates that the UK economy was losing steam even before the impact of Russia’s invasion of Ukraine.

“Tourism-related industries and accommodation services recorded the strongest improvements in the month as the end of Plan B restrictions, and reduced concerns over Omicron, supported activity. However, this was mostly offset by a significant drop in NHS Test and Trace services and vaccine activity as well as declines in industrial and construction output.

“February’s slowdown is likely to be the start of a prolonged period of considerably weaker growth as rising inflation, surging energy bills and higher taxes increasingly damages key drivers of UK output, including consumer spending and business investment.

Darren Morgan, director of economic statistics for the ONS, says UK manufacuturing output ‘fell notably’ in February as firms continued to struggle to obtain parts.

But the easing of travel restrictions lifted the travel sector, Morgan explains.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

UK economic growth slowed by more than expected in February, with Britain’s industrial output dropping as manufacturers struggled to obtain parts.

UK GDP rose by just 0.1% in February, new figures from the Office for National Statistics shows, with activity at Covid-19 Test and Trace and vaccination rollout programmes dipping.

That followed 0.8% growth in January, and is below the 0.3% February growth which economists expected. It leaves the economy around 1.5% larger than two years earlier, just before the UK’s first lockdowns.

The ONS reports that the services sector was the main contributor to growth in February, expanding by 0.2%, after England’s ‘Plan B’ restrictions were lifted at the end of January.

Ths was driven by tourism-related industries, after the scrapping of coronavirus testing for double-vaccinated travellers arriving in the UK from mid-February, in time for the half-term holidays.

The ‘travel agency, tour operator and other reservation services’ sector saw a 33% rise in activity, and accommodation grew 23%.

UK economy grew by just 0.1% in February, below expectations

It was largely driven by inbound inbound and outbound tourism

Though @ONS now says monthly GDP is 1.5% above its pre-pandemic level of February 2020

— Darren McCaffrey (@darrenmccaffrey) April 11, 2022

But human health activities dropped (down 5.1%), due to a fall in activity at NHS Test and Trace and vaccination activity after a busy December and January.

The production sector suffered a 0.6% drop in activity, while construction dipped by 0.1%.

Manufacturing was the main driver of negative growth in the production sector , falling by 0.4% in February 2022, the ONS says.

Car production, which has suffered from the shortage of semiconductors, saw output fall over 5%.

Contractions of 5.4% in manufacture of transport equipment (driven entirely by the fall in manufacture of cars), 4.3% in manufacture of computer, electronic and optical products, and 5.0% in manufacture of chemicals and chemical products were slightly offset by manufacture of basic pharmaceutical products and pharmaceutical preparations, which saw growth of 9.8%.

It leaves monthly GDP 1.5% above its pre-Covid-19 levels of February 2020.

Services is now 2.1% above its pre-coronavirus level, while construction is 1.1% above and production is 1.9% below, the ONS reports.

Also this morning, Elon Musk has decided not to join Twitter’s board of directors, in a U-turn just days after becoming its biggest shareholder.

Twitter’s chief executive, Parag Agrawal, says he believes the moves is for the best.

We have and will always value input from our shareholders whether they are on our board or not. Elon is our biggest shareholder and we will remain open to his input.”

There will be distractions ahead, but our goals and priorities remain unchanged.

Musk has tweeted a hand-over-mouth emoji following Agrawal’s announcement.

He’s been outlining various ways in which Twitter could (in his view) improve the services, including adding an edit button to tweets and criticising its moderation policies.

Europen stock markets are on track to open lower:

The agenda

• 7am BST: UK GDP and trade report for February
• 1pm BST: NIESR Monthly GDP Tracker for March
• 2pm BST: Russian foreign trade data for February
• 2pm BST: Bank of Israel’s interest rate decision