UK economy takes bigger-than-expected hit from winter strikes

The UK economy stalled unexpectedly in February when strikes crippled the public services but is still likely to perform better than the Bank of England has expected.

Gross domestic product was unchanged from January instead of eking out the 0.1 per cent growth analysts had expected, the Office for National Statistics said on Thursday. The figure for January was revised up to 0.4 per cent.

Together, the readings bring output in the UK further above its pre-pandemic level and suggest the economy is unlikely to shrink in the first quarter. That further reduces the risk of a recession but leaves the UK on track for an extended period of stagnation.

“While a flat economy is not usually grounds for celebration, there are some encouraging signs in today’s data,” said Kitty Ussher, chief economist at the Institute of Directors. “Were it not for the industrial action that took place in the public sector, the economy overall would have grown.

Assuming no revisions, the economy probably grew 0.1 per cent in the first quarter unless the figure for March shows a contraction of more than 0.2 per cent, the ONS said.

A contraction of 0.6 per cent would be required for GDP to fall 0.1 per cent on the quarter, as forecast by the Bank of England. That would be a bigger fall than in December, when consumer sentiment was weaker and the country suffered the most days lost due to strikes since 2011.

Chancellor of the Exchequer Jeremy Hunt said avoiding a recession - largely a result of lower-than-expected energy prices - was a victory for Conservative party policy.

“The economic outlook is looking brighter than expected,” Hunt said in a statement. “We are set to avoid recession thanks to the steps we have taken through a massive package of cost of living support for families and radical reforms to boost the jobs market and business investment.

George Lagarias, chief economist at accountancy firm Mazars, said the lack of growth was “bad news” for the UK.

“Growth in the UK is stagnating and has fallen behind its developed market peers,” he said. “We expect the UK to continue to underperform the other G-7 economies for the time being. However, we acknowledge that the short-term global economic outlook has materially improved in the past couple of months.”

Weak February figures reflect the impact of widespread industrial action during the month. Services output fell 0.1 per cent, hit by walkouts by teachers and civil servants. Manufacturing, which economists had thought would deliver small growth, also showed no change in the month.

Strikes intensified during the month, with teachers in England staging a national walkout on February 1 in their dispute over pay and regional strikes on other days. Other action involved rail workers, university staff, nurses, paramedics and civil servants.

February also was unusually warm, reducing output from utilities.

Despite the fall in the services sector, consumer-facing services grew by 0.4 per cent in February, driven by retail which expanded at the fastest rate since October. However consumer-facing services are still 8.9 per cent below their pre-pandemic level, while other services have clawed back losses to be up 2.2 per cent.

“A combination of upward revisions in GDP data and an improvement in global economic conditions could help the UK economy avoid a recession this year,” said Yael Selfin, chief economist at KPMG UK. “While this will provide relief for policymakers, the outlook for growth in the medium-term remains relatively weak by historical standards.”