UK GDP Growth Accelerates in February, But Manufacturing Headwinds Linger

The UK economy showed signs of resilience in February 2025, with gross domestic product (GDP) rising by 0.5% month-on-month, reversing January’s 0.1% contraction and exceeding expectations of a 0.1% gain. On an annual basis, GDP grew by 1.4%, marking a modest acceleration from January’s 1.0% year-on-year expansion. While the rebound reflects short-term stability, deeper analysis reveals stark sectoral divides: services-driven growth contrasts with persistent weakness in manufacturing and construction, leaving investors to weigh near-term optimism against structural challenges.

Services Sector Powers Growth, But Not Without Weaknesses

The services sector, which accounts for 74% of UK GDP, was the primary growth driver in February, expanding by 0.1% month-on-month and contributing 0.4% to three-month growth (November–January). Retail trade surged 1.7% as food store sales rebounded, while administrative and scientific services posted strong gains. However, consumer-facing subsectors like accommodation and food services declined 2.4% monthly, reflecting ongoing caution in discretionary spending.

Manufacturing Struggles Amid Global Headwinds

The production sector, which includes manufacturing, contracted 0.9% month-on-month in February, driven by a 1.1% drop in manufacturing output. The automotive industry remains a key drag, with motor vehicle production falling 8.8% annually due to supply chain disruptions and global trade uncertainties. Basic metals and pharmaceuticals also declined sharply, underscoring broader structural challenges.

Construction Stagnates, Public Projects Offset Private Weakness

Construction output dipped 0.2% in February, as private commercial and housing projects faltered. However, public-sector infrastructure spending rose 9.3% over three months, providing a partial buffer. This divergence highlights reliance on government-backed projects amid weak private demand.

Mixed Signals for Q1 2025

The February rebound leaves the UK’s first-quarter GDP growth outlook uncertain. While the three-month growth rate (November–January) was 0.2%, February’s 0.5% monthly gain could push Q1 to a modest positive. However, the ONS warns that early estimates are provisional, with final figures due on 28 March 2025.

Investment Implications

• Services stocks: Retail and professional services firms may benefit from resilient consumer and business spending, but hospitality and travel companies face lingering headwinds.
• Manufacturing exposure: Investors should remain cautious on UK-focused industrials, particularly automotive and metals, until supply chain issues ease.
• Construction: Public-sector projects could support firms like infrastructure developers, but private-sector weakness may limit broader gains.

Conclusion

The UK’s 1.4% annual GDP growth in February signals underlying economic stability, but sectoral imbalances persist. Services-driven resilience contrasts with manufacturing’s struggles, reflecting both global trade challenges and domestic demand shifts. Investors should monitor the 28 March GDP release for clarity on Q1 trends, while positioning for a bifurcated market: favoring services and public infrastructure plays while avoiding manufacturing-heavy sectors until structural risks abate. The UK economy remains a tale of two halves—one adapting to post-pandemic realities, the other grappling with persistent headwinds.

The path forward hinges on whether services can sustain momentum while manufacturing finds stability. For now, the UK’s growth story is one of cautious optimism, tempered by unresolved structural challenges.