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Inflation Concerns Underpin Bear Steepening

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LONDON (MNI)

The UK economy expanded modestly in February, while trade with the European Union made up some, but not all, of the extraordinary losses suffered in January, according to the gross domestic product and trade reports released on Tuesday by the Office for National Statistics.

GDP rose by 0.4% between January and February, falling just a bit short of the expected 0.5%, leaving GDP 7.8% below its level a year ago. GDP stands 3.1% the level of October, which marked the peak of the recovery before much of the country headed into an economic lockdown in November.

Services rose by a paltry 0.2% in February, well below the forecast 0.6% increase, contributing 0.17 percentage point to total growth. Services remain 8.8% below the level of February last year. Within services, wholesale and retail trade rose by 3.3%, following an 8.3% plunge in January, lifted by a pick-up in the trade of motor vehicles, according to a statistician. Accommodation and food services increased by 2.6%, but that reflected the application of seasonal factors, as turnover was little changed from January, according to a statistician.

Industrial production rose 1.0% in February, falling by 3.5% over the same month of last year. Manufacturing increased by 1.3%, but declined by 4.2% over February 2020. Construction increased by 1.6%, falling by 4.3% over last February.

January GDP was revised upward, showing a decline of 2.2%, versus the initially-reported 2.9% decline. Services accounted for much of the upward revision. That means GDP must rise by 6.4% in March for first quarter GDP to match the level of the final three months of 2020. GDP growth exceeded that margin in June and July of last year, as much of the country emerged from the first economic lockdown.

TRADE

EU trade made up some of the ground lost in February, when Brexit-related friction contributed to a sharp fall in both imports and exports. EU exports rebounded by 46.6%, while imports increased by 7.3%. That leaves exports down by 15.1% since the end of 2020, while imports are down 24.5%.

The headline total trade deficit increased to GBP7.123 billion in February from GBP3.370 billion in the first month of the year (initially reported was a shortfall of GBP1.630 billion). The goods trade deficit increased to GBP16.442 billion from GBP12.592 billion. Excluding trade in precious metals (including non-monetary gold), the total trade deficit increase to GBP1.388 billion from GBP845 million in January.

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