Growth boost for UK could be a false dawn as investment banks downgrade forecasts for UK amid Donald Trumps trade war

Rachel Reeves was given a boost by better-than-expected official growth figures yesterday - but faced warnings it is likely to prove a false dawn.

It came as US investment bank Goldman Sachs as well as Germanys Deutsche Bank both downgraded forecasts for the UK amid Donald Trumps trade war.

The Office for National Statistics said gross domestic product (GDP) grew by 0.5 per cent in February, much better than the 0.1 per cent expected by economists, and the strongest performance in 11 months.

But it was partly flattered by a big increase in exports to the US, as customers brought forward purchases of UK goods before the President’s tariffs came into force. 

And last night, new polling found more Britons now think their household finances will only get worse over the next 12 months.

In a month, the percentage of pessimists has risen from 46 per cent to 55 per cent, YouGov said.

The number saying that their finances will improve over the next year has dropped from 15 per cent to 11 per cent. The proportion who think their situation will remain the same is also down, from 34 per cent to 28 per cent.

The trade war launched by Mr Trump is expected to dampen business activity over coming months, as will Ms Reevess £25billion National Insurance raid, which came into force at the start of April.

Major US investment bank Goldman Sachs and Germanys Deutsche Bank have both downgraded forecasts for UK economic growth amid Donald Trumps trade war

Chancellor Rachel Reeves (pictured) was given a boost by better-than-expected official growth figures on Friday but has since faced warnings they will not be accurate

The Chancellor said the GDP data was an encouraging sign but acknowledged that the world has changed as families and businesses worry about how tariff chaos will affect them.

Tory business spokesman Andrew Griffith said: Growth figures for February are likely to be a false dawn of business activity before the tsunami of higher employment taxes and costs from the start of April.

Yesterdays figures also revised up GDP for January, but only from minus 0.1 per cent to zero. This was partly driven by a sharp rise in manufacturing. 

Separate ONS figures revealed a £500million increase in goods exports to the US to the highest level since November, 2022.

The surge in February came before Mr Trumps announcement of huge new tariffs last month. 

But the President had already announced 25 per cent duties on steel and aluminium, and firms would have been anticipating further action.

William Bain, head of trade policy at the British Chambers of Commerce, said: There are clear signs that UK firms increased goods exports to the US ahead of the introduction of tariffs.

Ruth Gregory, deputy chief UK economist at Capital Economics, said the GDP figures appear to have been flattered by a boost from tariff-front running.

It comes as fears grow that the global turbulence sparked by Mr Trump will drag the world into recession and damage Britains already meagre growth prospects.

Earlier this week, Bank of England deputy governor Sarah Breeden warned that tariffs would have a chilling effect on the economy.

Yesterday, Goldman Sachs cut its UK growth forecast for this year by 0.3 percentage points to 0.95 per cent. And Deutsche Bank lowered its growth outlook from 1 per cent to 0.8 per cent.