The 0.1% increase to UK GDP in February has left many analysts forecasting a slow road ahead for economic growth.
Activity deescalated significantly from the 0.8% growth in January and could be the first sign of an economic slowdown in the second quarter, according to Derrick Dunne, chief executive of YOU Asset Management.
GDP is forecast to grow 3% this year but Dunne said that slowing growth paired with rising inflation greatly increases the chances of a recession.
He said: “Against this uncertain backdrop, it would be prudent for investors to review their portfolio and consider where any adjustments may be needed to keep them on course to meet their long-term goals.”
Although some question the economy’s strength as the threat of stagflation looms, Hargreaves Lansdown senior investment and markets analyst Susannah Streeter said the Bank of England is unlikely to alter its planned interest rate hikes this year.
However, she did say that the dwindling purchasing power of people’s savings will prevent the Bank from tightening its monetary policy as aggressively as the Federal Reserve.
Streeter said: “The saving grace for now are the piles of lockdown savings which many consumers were able to build up during the pandemic and which are now a soft pillow to land on as the headwinds of higher prices whip up, but this cushion flatten as the year progresses.”
Over the course of the pandemic, healthcare services were the biggest contributor to UK growth but the winding down of Covid support like the vaccination and testing programmes are likely to dampen momentum, according to Danni Hewson, financial analyst at AJ Bell.
Contributions to UK GDP growth between February 2020 and February 2022
Source: Office for National Statistics (ONS)
The removal of these services will likely leave a gap in economic activity, which is already visible from February’s figures – healthcare services were the biggest detractor to GDP growth followed by the motor sector as supply shortages continue to strain vehicle production and maintenance.
With many borders re-open and travel restrictions eased, tourism was the leading contributor for growth in February, but holidaymakers may have lost some of their zest as a high number of Covid cases among airline staff led to over 200 flight cancellations last week.
This could be reflected in March’s figures, which will also reveal the impact Russia’s invasion of Ukraine.
Contributions to UK GDP growth in February 2022
Source: ONS
Consumer facing services, an area that has been rattled by numerous lockdowns over the past two years, increased 0.7% in February but slowed significantly from its 2% growth the month prior.
It has yet to fully recover from its losses, with output still 5.2% below its pre-pandemic level.
February’s reduced growth may be exacerbated as rising inflation and a tightening on the cost of living discourage households from parting with their cash.