UK's GDP continues to climb, suggesting progress out of economic depression

UK's GDP continues to climb, suggesting progress out of economic depression

The UK economy experienced a modest growth in February, as indicated by the Office for National Statistics (ONS), with the GDP increasing by 0.1% over the last three months to the end of February. This growth marks the first time since last summer that the GDP has increased in consecutive quarters.

However, the economy's expansion comes amidst significant financial challenges faced by Small and Medium-sized Enterprises (SMEs). According to a survey conducted by Manx Financial Group, two out of five SMEs are currently grappling with operational slowdowns or halts due to a lack of external financing.

Liz McKeown, ONS director of economics statistics, commented on the growth in February, stating that while the economy is showing signs of recovery, it is a small, consistent step back towards growth.

John Glencross, CEO and Co-Founder of Calculus, emphasized that UK smaller businesses ignite growth, increase employment, and drive innovation. However, he highlighted that the ongoing financial strain on SMEs, due to factors such as rising operational costs, restricted finance access, and fluctuating consumer demand, is threatening their ability to contribute robustly to economic growth.

The obstacles include ongoing conflicts, multiple elections, a tightening labour market, and persistent cost-of-living challenges. These factors have led to substantial job losses in the sector, with 24,900 jobs lost in April 2025 alone. Although the Bank of England’s recent base rate cut to 4% provides some relief by lowering borrowing costs and easing repayment pressure, inflation remains stubborn, keeping operational costs high and limiting the full positive impact of cheaper borrowing.

SMEs stress the need for faster, easier funding to manage cash flow pressures, especially in sectors with tight margins. Many SMEs express frustration over perceived government inaction and outdated support systems, which is eroding their confidence in the UK business environment and hindering growth prospects.

Despite these challenges, some SMEs remain cautiously optimistic. Reports show that 57% of London SMEs express confidence about their future by adapting strategically to the pressures of inflation, rising costs, and shifting consumer behaviors. However, many still face shrinking customer spending and increased competition, which impacts business sustainability.

The impact on national economic growth is significant. SMEs are crucial to the UK economy, but ongoing financial strain on this sector contributes to fragile GDP growth, elevated unemployment in the SME sector, and reduced economic dynamism. The deteriorating confidence and difficulties in scaling or innovating due to financial pressures imply that SMEs are less able to drive the broad-based economic recovery and productivity improvements needed for stronger national growth.

In summary, according to insights aligned with Manx Financial Group’s focus on SME financial challenges and corroborated by Office of National Statistics data referenced in the analysis:

• Main financial challenges: rising operational costs (inflation, National Insurance, wages), restricted finance access, and fluctuating consumer demand.
• Economic impact: weakened SME growth contributes directly to sluggish GDP growth, elevated unemployment in the SME sector, and reduced economic dynamism.
• Sector sentiment: declining confidence due to lack of timely government support and outdated systems threatens both SME survival and their crucial role in UK economic stability and growth.
• Now more than ever, it is crucial to support UK smaller businesses.

Douglas Grant, group CEO of Manx Financial, has warned that despite the positive increase, individuals and businesses are still set to face financial difficulties. He encourages SMEs to reassess their existing lending arrangements and strengthen their positions. The latest GDP figures serve as a reminder that challenges still persist.

The UK's dominant services sector only grew by 0.1% in February, with weaker activity in retail and wholesale distribution. The growth in February matches City economists' forecasts and extends a recovery after growth in January was revised up from 0.2% to 0.3%. However, the construction sector saw notable falls in February due to adverse weather conditions, with construction output collapsing by 1.9% on the month.

Despite these setbacks, the economy experienced growth in manufacturing, particularly in the car sector. John Glencross stated that the UK economy is steadily emerging from a short recession in record time. However, the survey underscores that financial constraints and a volatile environment pose obstacles to the prospects of SMEs and national economic growth.

[1] Source: Office for National Statistics (ONS) [2] Source: Bank of England [3] Source: Institute for Fiscal Studies (IFS) [4] Source: Federation of Small Businesses (FSB) [5] Source: London Chamber of Commerce and Industry (LCCI)

1. The ongoing financial challenges experienced by Small and Medium-sized Enterprises (SMEs), such as rising operational costs, restricted finance access, and fluctuating consumer demand, could hinder robust contribution to economic growth, as stated by John Glencross, CEO and Co-Founder of Calculus.
2. Douglas Grant, group CEO of Manx Financial, emphasized that despite the recent positive increase in GDP, financial difficulties persist for individuals and businesses, necessitating SMEs to reassess their existing lending arrangements and strengthen their positions, as a reminder of the challenges that still exist.

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