Rachel Reeves was given a major boost today when official figures showed the British economy surged by 0.5% in February.
The latest “encouraging” figures from the Office for National Statistics (ONS) were far better than the 0.1% GDP growth the City has been expecting.
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It means the British economy was 1.4% bigger than a year previously and up 0.6% in the three months to February.
However, City economists warned that the spurt could be short-lived as the impact of higher tariffs and business taxes kick in.
All three sectors of the economy saw strong advances in the month, according to the ONS.
The growth was driven by a big bounce back in industrial output with the production sector, which includes manufacturing and oil and gas production, up by 1.5%.
Manufacturing output was particularly strong growing by 2.2% on the month.
The dominant services sector grew by 0.3% in February, while construction output grew by 0.4% .
Real wages have been growing strongly over recent months as inflation has abated, putting more money in consumers’ pockets and encouraging them to spend.
Liz McKeown, ONS director of economic statistics, said: “Within services, computer programming, telecoms and car dealerships all had strong months, while in manufacturing electronics and pharmaceuticals led the way and car manufacturing also picked up after its recent poor performance.
"Across the last three months as a whole, the economy also grew strongly with broad-based growth across services industries."
It follows flat GDP in January, when there was a big slump in industrial output.
The Chancellor said: “These growth figures are an encouraging sign, but we are not complacent. We must keep going further and faster on our Plan for Change.
“The world has changed, and we have witnessed that change in recent weeks. I know this is an anxious time for families who are worried about the cost of living and British businesses who are worried about what this change means for them.
“This Government will remain pragmatic and cool-headed as we seek to secure the best deal with the United States that is in our national interest.”
The welcome increase in output in February may help to allay fears that the British economy will struggle to pick up pace in 2025.
Even before the extraordinary bout of financial turbulence over the past week, forecasters have been slashing their predictions for growth this year.
In the Spring Statement last month the Office for Budget Responsibility halved its forecast from 2% to 1%, although it slightly upgraded its expectations for future years.
However, that was before Donald Trump imposed 10% tariffs on good being sold into Britain’s biggest export market and plunged share and bond markets into a period of extreme gyrations.
So far Sir Keir Starmer has not responded to the tariffs, which also include higher 25% levies on steel and cars, with any reciprocal measures.
Derrick Dunne, CEO of YOU Asset Management, said: “ The UK economy may have returned to growth, however an incredible amount has happened since the data was compiled.
"The fragile UK economy must now contend with the turmoil wrought by the new tariff regime in the US. The ninety-day reprieve of these hokey-cokey tariffs, while welcome, prolongs the uncertainty.
"The trade war isn’t the only problem. High energy costs and rising taxes are also likely to weigh on economic growth from here. It is tough to find reasons to be cheerful about the UK’s prospects at the moment, but we’ve yet to see what impact the government’s growth agenda will ultimately have.”
Suren Thiru, economics director, at t accounting body ICEAW said: “Though activity rebounded strongly as services and manufacturing output rallied, February’s figures have been pushed firmly into the background by the financial market bedlam caused by Trump’s tariff announcements.
“February’s uptick should mean a notably positive first quarter for the UK economy, with modest growth in March likely, possibly aided by a temporary boost from some companies bringing forward activity ahead of new US tariffs taking effect.”
