UK February GDP Beats Expectations Amid Rising Geopolitical Risks

Preliminary data from the Office for National Statistics reveals the UK economy grew by 0.5% in February, far surpassing the 0.1% expansion predicted by economists. The growth was broad-based, with services and production both rising 0.5% and the construction sector increasing by 1%. This follows a modest 0.1% growth in January, signaling a temporary rebound in economic activity. Despite the strong February figures, the forward-looking outlook has dimmed following military operations between the U.S. and Iran launched on February 28. The International Monetary Fund has subsequently lowered its 2026 growth forecast for the UK from 1.3% to 0.8%, citing the nation's particular vulnerability as a net energy importer during global price shocks. This geopolitical instability is expected to drive inflation higher, with March estimates rising to 3.3% from February's 3%. This shift has largely erased previous expectations for interest rate cuts, with markets now weighing the possibility of rate hikes to combat rising prices. Analysts suggest the Bank of England may remain cautious in its next meeting. While some expect the bank to hold rates steady given current restrictive territory, others anticipate 25 to 50 basis points of hikes by year-end as financial conditions tighten and sentiment weakens.