Strikes sap UK economy of growth in February as headwinds abound

(Alliance News) - The latest gross domestic product print from the UK seemed to defy some of the gloomier forecasts, but it faces plenty of headwinds, not least the recent outbreak of industrial action.

The UK's economy registered no growth in February, as a contraction in services and production offset progress in the construction sector, according to the Office for National Statistics on Thursday.

ONS estimated that in February, real GDP registered no growth from the previous month. This compared with the upwardly revised 0.4% growth seen in January. January was initially estimated at 0.3% growth.

February's reading was below the 0.1% market consensus, as cited by FXStreet. The ONS explained that falls in services and production were offset by growth in construction.

The services sector saw a 0.1% contraction during the month, after an upwardly revised 0.7% growth in January from December.

"Public sector strikes left economic growth flatlining in February, with industrial action by teachers and civil servants denting activity. There were strikes in the NHS and rail networks too, all of which had a knock on effect on businesses, with one in nine businesses saying they were either directly or indirectly impacted by industrial action," said AJ Bell's head of investment analysis, Laith Khalaf.

Hargreaves Lansdown's Susannah Streeter said the industrial action wires were "piling on the pressure just when the economy needs it the least, as stagflation takes hold".

"This will put the government under extra pressure to come up with resolutions," she said.

However, there were some "bright spots", AJ Bell's Khalaf noted.

The construction sector grew by 2.4% in February, compared to a 1.7% fall in January. February saw the highest monthly value in level terms since records began in 2010, ONS said, at GBP15.56 billion.

"Leisure activity was helped by relatively warm weather, though benevolent climactic conditions also hit electric and gas output," Khalaf added.

The upward revision to 0.4% in January was also a "very decent showing", Khalaf maintained.

"With February's 0% growth neither adding nor subtracting from proceedings, that leaves the first quarter of the year on course to post positive economic growth, as long as March keeps its end up," he said.

However, strikes are likely to continue to weigh on the UK's economic growth prospects in March. During the month, teachers, university staff, train drain operators, and junior doctors were among those who staged walkouts.

"Although the UK looks set to avoid a technical recession and last year's extremely pessimistic forecasts have been wound back, the economy is still expected to shrink this year as pressures from persistent inflation with the cost-of-living crisis, falling real wages and a high exposure to gas prices take their toll," said Victoria Scholar, interactive investor's head of investment.

UK output is expected to contract by 0.3% this year before rebounding to grow by 1% next year, according to the International Monetary Fund.

The forecast puts the UK at the bottom of the G7 group of advanced economies, with only Germany also expected to see a mild contraction of 0.1%.

"The UK economy has been surprisingly resilient in the face of doom-laden projections from economic forecasters," considered AJ Bell's Khalaf, before adding that the economy is "by no means hitting it out of the park".

"There are still plenty of threatening storm clouds on the global economic horizon, not least the effects of the ongoing conflict in Ukraine and the potential fall-out from turmoil in the banking sector. But so far in 2023, the UK economy has performed pretty well in spite of the challenges it faces," he concluded.

By Elizabeth Winter, Alliance News senior markets reporter

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