Economy boost
The UK economy experienced faster-than-anticipated growth in May, rebounding from the wet weather that dampened consumer spending in April, according to official data.
The Office for National Statistics (ONS) reported a 0.4% increase in gross domestic product (GDP) for May, following zero growth in April. This outperformed the 0.2% growth forecasted by City economists.
The growth was predominantly driven by the services sector, which expanded by 0.3%. Additionally, production saw a 0.2% rise, and construction surged by 1.9%. Liz McKeown, Director of Economic Statistics at the ONS, stated, “The economy grew strongly in May, with all the main sectors seeing increases. Many retailers and wholesalers had a good month, bouncing back from a weak April. Construction grew at its fastest rate in almost a year, with housebuilding and infrastructure projects boosting the industry.”
April’s wet weather had deterred consumers from high street spending, contributing to the stagnation in GDP for that month.
On a quarterly basis, the UK economy grew at the fastest rate in over two years, expanding by 0.9% in the three months to May compared to the previous three months. This growth was largely fueled by a 1.1% increase in services output.
Chancellor Rachel Reeves commented, “Delivering economic growth is our national mission, and we don’t have a minute to waste. This week, I have already taken the urgent action necessary to fix the foundations of our economy, to rebuild Britain, and to make every part of Britain better off. A decade of national renewal has begun, and we are just getting started.”
The new Labour government has prioritized economic growth, implementing measures such as the creation of a national wealth fund.
George Roberts, head of dealing at global financial services firm Ebury, remarked, “This morning’s GDP data will put a spring in Sir Keir Starmer’s step as he continues his whistle-stop tour around Europe and the US. With Labour’s victory in the polls quelling market fears, inflation back down to target, and the new administration signaling closer ties with the EU, UK businesses will likely be feeling optimistic about the future.”
However, borrowers anticipating an interest rate cut next month may be disappointed. The Institute of Chartered Accountants in England and Wales has warned that the stronger-than-expected economic growth in May may delay any rate cuts. Economics Director Suren Thiru explained, “These GDP figures may make an August rate cut less likely by providing those rate setters who are concerned about underlying price pressures with sufficient confidence about the UK’s economic recovery to continue putting off loosening policy.”
Yael Selfin at KPMG noted, “The near-term outlook for the UK economy has continued to improve. We now expect growth to reach 0.8% this year and 1% in 2025. Consumer spending is set to be the main driver of activity in the second half of the year, underpinned by stronger consumer sentiment and improving household incomes.”
