On February 22, 2025, customers thronged Portobello Road Market in Notting Hill, West London, blissfully unaware that behind the hum of local chatter, the UK economy had just sprung a delightful surprise.

Based on official statistics, the UK‘s GDP increased by 0.5% in February, beating expectations of a mere 0.1%. The growth was propelled by:

A 0.3% increase in the services sector

A 1.5% rise in production output

A 0.4% increase in construction activity

The British pound appreciated by 0.6% against the US dollar immediately after this announcement, reflecting increased confidence in the economy — particularly following a minor contraction in January.

Yet, the optimistic outlook is overshadowed by outside pressures. Up to April 5, the United States imposed new tariffs on British exports, including:

A 10% standard tariff on most products

Tariffs of up to 25% on steel, aluminum, and automobiles

Economists predict that these tariffs will hurt UK growth by as much as 0.6%, spurring speculation regarding a potential interest rate reduction by the Bank of England.

Moreover, domestic concerns are mounting regarding possible welfare expenditure reductions and higher business taxes, which could act on consumer and investor confidence. To counter these threats, the Office for Budget Responsibility (OBR) has downgraded the UK‘s 2025 growth forecast from 2% to only 1%.

➤ The Big Picture:
Although February‘s figures bring some cheer, long-term growth will rely on how the UK will overcome these international trade tensions, monetary policy changes, and fiscal domestic issues.