The UK economy grew for a second month in February, suggesting a recovery from a recession is now well under way.

Gross domestic product (GDP) rose 0.1% from January, the Office for National Statistic (ONS) said on Friday, in line with the gain forecast by economists. January’s figure was revised up to show a 0.3% increase.

The figures add to evidence that the economy is gathering momentum after sliding into a shallow technical recession in the second half of last year, amid elevated inflation and interest rates. Many economists expect growth in the first quarter to beat the 0.1% predicted by the Bank of England (BOE).

Manufacturing jumped 1.2% last month, a much stronger than expected showing, while services expanded by 0.1%. Construction fell 1.9%, held back by wet weather. 

“The economy grew slightly in February, with widespread growth across manufacturing, particularly in the car sector,” said Liz McKeown, the ONS director of economic statistics. “Services also grew a little with public transport and haulage, and telecommunications having strong months.”

The pound was little changed after the data, down 0.1% on the day to US$1.2537.

The pickup has led investors to scale back bets on how many rate cuts the BOE will deliver this year, despite the headline rate of inflation widely forecast to return to the 2% target this month. They now expect just two - the first of them fully priced in September - after Megan Greene on Thursday became the latest BOE policymaker to warn that reductions are likely still some way off.

GDP will grow in the first quarter unless output falls by 1.3% or more in March, the ONS calculated. 

Signs of turnaround will be welcomed by UK Prime Minister Rishi Sunak, who is counting on the return of a feel-good factor to lift the fortunes of his Conservative Party ahead of an election expected in the second of the year. Opinion polls put the Tories around 20 percentage points behind the opposition Labour Party.

Surveys suggest the housing market and private sector are picking up. With wages now outpacing prices, living standards are rising once again, and households can expect a significant boost this month after a national insurance payroll tax cut took effect, the minimum wage rose by almost 10%, and domestic energy prices fell to a two-year low.

However, the recovery is likely to be modest rather than spectacular, as past interest-rate increases continue to feed through to households and companies. Analysts expect the UK to trail every other Group of Seven country except Germany for another year. 

For BOE officials, the main concern remains the threat from persistent inflation. Markets expect officials to commence rate cuts later than the European Central Bank, which on Thursday signalled that it could move as early as June, and around the same time as the Federal Reserve in the US, where a hot inflation reading spurred a major repricing this week.

  - Bloomberg