Why is the economy flatlining and what does it mean?

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The UK’s economy flatlined in February, with the latest official figures recording gross domestic product (GDP) of 0.0%.

Chancellor Jeremy Hunt said the economic outlook is looking “brighter than expected”, despite the lacklustre reading from the Office for National Statistics (ONS).

The PA news agency answers some key questions about what the latest figures mean for the economy and people’s money.

– Why was the economy flat in February?

It was flat because it did not grow, but it did not contract either.

UK monthly economic growth
(PA Graphics)

The ONS said that industrial action was a key factor in dragging on growth, with February 1 marking the biggest day of strikes in a decade as teachers, rail workers, civil servants and other workers walked out in protest over their pay, jobs and conditions.

– Is the UK going to have a recession?

So far, the UK has avoided falling into a recession – which is generally defined as two consecutive quarters of negative GDP in a row.

The economy grew by 0.1% in the final quarter of the year, which eased fears that the country was heading towards a downturn.

It also grew by 0.4% in January, and to two decimal places, it eked up by 0.02% in February.

UK monthly economic growth
(PA Graphics)

– Which sectors are driving growth and which are lagging behind?

The services sector acted as a drag on GDP in the latest dataset, which includes everything from healthcare to the arts and transport.

Education declined the most, by 1.7%, due to tens of thousands of teachers going on strike in February.

Public administration, which includes the Civil Service, transportation and storage sectors, also saw output fall.

On the other side of the coin, retailers did well, with many shops having a buoyant month, leading to the largest growth figure being recorded since October.

Mass UK strike action
Tens of thousands of teachers went on strike on February 1, which helped drag down services sector output in February (Jordan Pettitt/PA)

Savers and borrowers are mostly impacted by changes to the UK’s interest rate, which has been steadily rising for more than a year.

The Bank of England has been hiking up rates – which make it more expensive to borrow loans like a mortgage, but reward people who have cash in savings accounts – in a bid to control the UK’s spiralling inflation.

The fact that GDP has avoided falling into negative territory could show monetary policymakers that the country is in better health than expected, but they will continue to be guided by the inflation rate, which stood at 10.4% in February.

– How is the UK doing compared with other countries?

The UK is projected to be the worst-performing economy in the Group of Seven advanced economies this year, according to a closely watched report from the International Monetary Fund (IMF).

Economists say Britain is struggling more than other countries because it is more dependent on imported energy, and because of shortages in the labour market.

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