"UK GDP came in at just 0.1% in February, down from 0.8% in January and suggesting the beginnings of the slowdown economists predict will take place in Q2."
Services grew by 0.2% and 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 services growth in February 2022 was mainly driven by tourism-related industries with increases in both travel agency, tour operator and other reservation service and related activities (growing 33.1% on the month), and accommodation (growing 23% on the month).
Despite the fall compared to January, monthly GDP remains 1.5% above its pandemic levels in February 2020.
George Lagarias, chief economist at Mazars, commented: "Gross Domestic Product grew 0.1% in February, down from 0.8% in January, which was slightly less than expected. Despite an upward revision of previous numbers, the overall economic backdrop is fragile and due to weaken further. The good news is that the services sector improved materially, driven by tourism as UK is again open to visitors without restrictions. For an economy whose GDP depends by 73% on services, this is positive.
"The bad news is that supply chains are once again succumbing to pressures. Industrial production globally is slowing down, as a result of supply shortages, escalating input costs and rising geopolitical pressures. The global manufacturing downturn makes the UK economy more dependent on services for the foreseeable future and thus more susceptible to the inflation scare and a potential resurgence in the pandemic."
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The UK economy is already showing signs of fresh fragility in its latest health check, which is far from surprising given that in February the world veered from one crisis to another. It eeked out just 0.1% growth during the month, and that was despite a leap in demand for travel, with increases in tour operator travel agency and other related activities surging by a third (33.1%) on the month. Hospitality continued to bounce back from the unwelcome side effects of the Omicron variant, with accommodation and food services boosted by 8.6% but production fell by 0.6% and construction dipped by 0.1%.
"It’s little wonder the economy overall is showing signs of stalling from its remarkable pandemic recovery, given the sense of foreboding which arose from mid-February as troops amassed on the Ukraine border and then the commodity shock unleashed by the invasion hit sentiment.
"Although the economy is 1.5% above its pre-pandemic level, the underlying health may be weaker particularly because increased healthcare activity has been the crutch supporting the economy during the pandemic. The main contributor to the recovery from the start of the crisis has been human health and social work activities and the reduction of the test and trace scheme and vaccination programme partly accounted for the slowdown in February. We still need to see a shift upwards in overall productivity levels but with the labour crunch intensifying, borrowing costs rising and business investment flagging that is proving elusive.
"Despite worries about consumer and company resilience this snapshot is unlikely to push the Bank of England off its path of rate hikes this year. Attempting to tame increasingly wild inflation is still set to be the priority. However, this reading does indicate the UK economy is showing more signs of fragility than the US. The saving grace for now are the piles of lockdown savings which many consumers were able to build up during the pandemic and which are now a soft pillow to land on as the headwinds of higher prices whip up, but this cushion flatten as the year progresses. So policymakers are likely to hold off from mirroring the Federal Reserve’s much more aggressive stance in terms of tightening monetary policy."
Derrick Dunne, CEO of YOU Asset Management, added: “UK GDP came in at just 0.1% in February, down from 0.8% in January and suggesting the beginnings of the slowdown economists predict will take place in Q2. The data for March will therefore be particularly telling, as it starts to reveal the impact of rising bills and the news of the Russian invasion on economic output.
“All the same, today’s figures give valuable insight into how different sectors were faring as we entered this current period of uncertainty. The services sector experienced encouraging growth for example, largely owing to tourism-related activities, while the manufacturing and construction industries fared less well, and both experienced contractions.
“As it stands, GDP currently sits at 1.5% above pre-pandemic levels, however with consumer confidence plummeting and inflation expected to rise once again on Wednesday, fears that the UK could enter a recession this year are rife. Whether or not this will become a reality remains to be seen but, against this uncertain backdrop, it would be prudent for investors to review their portfolio and consider where any adjustments may be needed to keep them on course to meet their long-term goals.”
