Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
The UK economy unexpectedly signed 0.1% in May. This is the second monthly decline, a sign that the strong growth seen at the beginning of the year has dissipated.
The National Bureau of Statistics’ Friday figures were well below the 0.1% growth forecast by economists voted in Reuters, following a 0.3% contraction in April.
The May decline, due to production and construction falls, shows a sharp slowdown in the second quarter after a rapid growth of 0.7% in the first three months of the year.
The pound fell 0.2% against the dollar to $1.35 after data release.
Professor Joe Nellis, economic adviser to accounting and advisory firm MHA, said the figure was a “far cry” from the first quarter, with the surge in exports and robust performance in the services sector putting the UK among top performers in the G7.
“We expect growth to be modest for the first half of this year,” Neris said. “This presents a challenge to the Prime Minister. Her fiscal headroom remains limited by high levels of public borrowing and debt, and her spending plans are heavily dependent on the kickstart of the economy.”
The labor government pledge to revive growth is at the heart of funding Prime Minister Rachel Reeves’ spending plan, with economists fighting to fill a financial hole that could reach more than £2 billion.
However, the Bank of England warned that it would remain fundamentally growth, adding that economic activity in the first quarter was driven by one-off factors, including front-load activities, including changes to US tariffs and stamp duty.
Reeves added on Friday that May’s GDP figures were “disappointing” and that she “decided to start economic growth.”
“These downbeats definitely heighten anxiety about the health of the UK economy,” said Suren Till, director of economics at the chartered Institute of Accountants in England and Wales.
He added that August interest rate cuts from BOE, which had a 4.25% borrowing cost last month, “looks inevitable now.”
Following the release of the data, investors increased their bets slightly in August quarterly cuts. The market expects two cuts by the end of the year.
Liz McKeown, director of ONS Economic Statistics, said the May contraction was “driven by a prominent fall in production and construction.”
She added that the decline in production is centered around “oil and gas extraction, car manufacturing, and the often elatic pharmaceutical industry.”
Pauldales, an economist at consultant capital economics, calculated that even if GDP improves to flat-reading in June, growth would slow to just 0.1% overall for the second quarter.
“The hangover from a burst of first quarter activity continued in May,” he said, adding that he expects “a considerable suppressed” growth this year due to “depending on the global economy and rising domestic taxes on UK companies.”
Growth was revised to 0.4% in March, up from the initial estimate of 0.2%, increasing its three-month expansion to 0.5% compared to the past three months.
However, McKeown said this reflects “the strength that emerged from what some of the activities were submitted in February and March at the beginning of the year.”
The pessimistic growth figures throw poles at the cabinet “away day” convened by Prime Minister Kiel starmer on Friday.
Shadow Chancellor Mel Stride ir said: “The economy actually shrunk in May thanks to the reckless choices of workers, which will add to the tax increase in the fall.
Away Day ministers will assess the damage caused by the financial restitution and withdrawal to winter fuel payments that have blown a hole of over £6 billion in the government’s fiscal plan.
Business leaders warn Reeves will be further weakened by trying to fill that gap by hitting the business and the city of London with higher taxes.
CBI Lead Economist Ben Jones said: “The financial challenges and the fall budget on the horizon must provide a clear peace of mind for the Prime Minister, instead providing a commitment to working with businesses to dismantle the barriers to growth.”
