The U.K. economy grew by a higher-than-expected 0.5% month-on-month in February amid a jump in the services output, official data showed on Friday.

According to newly released data, the U.K. economy outperformed expectations in February, achieving a 0.5% increase in GDP compared to analysts' projections of a mere 0.1%. This notable uptick was primarily bolstered by a 0.3% growth in the services sector, which had previously only edged up by 0.1% in January. Concurrently, production output surged by 1.5% following a 0.5% contraction the previous month. Construction also witnessed a 0.4% recovery, reversing a 0.3% decline. Following the announcement, the British pound rose by 0.6% against the U.S. dollar, reflecting heightened investor confidence in the U.K. financial landscape. A revision of prior data also indicated a flat growth for January, countering the initial report of a contraction. However, the improvements come as the U.K. faces looming challenges on the trade front, particularly concerning U.S. tariffs that threaten exports. Analysts, such as Suren Thiru from the Institute of Chartered Accountants, have voiced concerns that the uncertainty stemming from potential U.S. duties could overshadow this positive growth data, particularly regarding the Bank of England's interest rate decisions in the coming months. Notably, there is market speculation about a potential 25-basis-point cut in interest rates by May, reflecting nervousness about the sustainability of this growth amidst global economic instability. While the recovery in services and manufacturing output is a welcome sign, the economic context remains precarious, shaped by governmental responses to external pressures such as tariffs and significant welfare cuts. This dual narrative of positive growth offset by geopolitical anxieties paints a complex picture of the U.K.'s economic trajectory.