The UK economy grew by 0.1% in May, reversing the 0.1% contraction recorded in April, while GDP increased by 0.7% across the three months to May. A 0.3% rise in services helped offset declines in production and construction, although continued disruption linked to the conflict in the Middle East could place further pressure on the UK’s economic outlook.
Experts are reacting to the latest figures below:
“Despite fears that momentum in the UK economy had faded, it has surprised with growth of 0.1% in May, reversing the 0.1% fall seen in April. GDP grew by 0.7% in the three months to May, better than the 0.5% expected, and the three months to April was revised up to 0.8%. Services output of 0.3% in May was a key driver of the growth, though it was offset by falls in production and construction.
Lindsay James, investment strategist at Quilter
“The conflict in the Middle East has already left a significant mark on the economy, and while today’s GDP print is better than expected, there is still a risk that the fallout is far from over. While the ceasefire announced earlier this summer briefly improved sentiment, renewed tensions and ongoing disruption have exposed how fragile the situation remains.
“Households are also yet to feel the full impact. While energy bills have risen following the latest increase in the price cap, higher food prices are still feeding through and will add further pressure to already stretched household budgets.
“Meanwhile, the UK is braced for a new prime minister, and markets will be watching closely for any signals on Andy Burnham’s plans for spending, taxation and borrowing. What’s more, ongoing speculation over who will take the role of Chancellor is adding another layer of uncertainty for businesses and risks weighing further on confidence.
“All of this leaves the Bank of England with a tricky path to navigate. Growth is still relatively weak, and inflation risks remain very much alive, particularly with energy and commodity markets still vulnerable to further geopolitical shocks.”
“The British economy is once again proving its resilience and pushing back on forecasts for a Mid-year recession. While month-on-month economic growth for May was anaemic, just 0.1%, it still beat expectations for 0%. Meanwhile, the three-month GDP growth was 0.7% with the previous number revised up by 0.1%. For the second straight three-month period, all parts of the economy had a positive contribution, with services taking the lead.
“Having said that, today’s number doesn’t help Bank of England doves. With the resumption of hostilities in the Middle East, stronger than expected economic growth could tilt the scale towards a rate hike in the next few months.”George Lagarias, Chief Economist at Forvis Mazars
“The UK economy started the year with decent momentum, but there are now signs that the promising start is fading. With the consequences of the conflict in the Middle East still unfolding an inflationary pulse could squeeze household finances and knock growth further off course.
“A hot, football-fuelled summer has accelerated consumer spending and provided a short-term reprieve for many businesses, especially those in hospitality pushed to the brink by higher labour and energy costs. Yet with the jobs market softening and households carrying the scars of past price shocks, autumn could carry a sting in the tail.“The step up in the energy price cap, higher borrowing costs and the possibility of more energy market disruption could weigh as the year progresses. Meanwhile, the approach of what stands to be a seismic autumn Budget could undermine business and consumer confidence.
Rob Morgan, Chief Investment Analyst at Charles Stanley Direct, part of Raymond James
“Despite pressure on fuel prices and supply chain disruption thanks to the war in Iran, the UK’s economy did manage to eke out a small amount of growth in May after rebounding from a fall the previous month.
“For incoming prime minister Andy Burnham, it’s a positive note to begin on. But 0.1% growth is hardly cause for celebration and certainly nowhere near the momentum needed if ordinary people are going feel the country is working for them.
“Mr Burnham will face tough choices when he finally gets his feet under the desk at Number 10 and there’s been no shortage of speculation and pitch rolling ahead of what many are calling his coronation. Whilst reports that Shabana Mahmood is now front-runner for the position of chancellor do seem to have calmed crucial money markets, nerves about potential tax hikes could create another long autumn of consumer caution.
“Finding the right mix of spending, borrowing and taxation is a kind of alchemy that often feels elusive, and decisions made by Rachel Reeves and Keir Starmer have been blamed for undermining business confidence and impacting hiring, especially of younger workers. Making the right choices is particularly important as technology advances to ensure people aren’t left behind in the race for productivity gains, but cost savings must also be factored into government decisions.“Only the dominant service sector managed to find a forward gear in May, with both production and construction losing momentum. The UK might have delivered the fastest growth in the G7 at the start of the year, but it’s a low bar. And the UK’s high levels of debt make it particularly vulnerable to further inflation shocks which may result from continued conflict in the Middle East.”
Danni Hewson, AJ Bell head of financial analysis
“Following April’s decline, it’s encouraging to see the economy return to growth in May, even if the increase is modest at 0,1%. The reality is the UK remains in a low-growth environment and periods of expansion and contraction are likely to alternate over the coming months.
Richard Pike, sales and marketing director at Phoebus Software
“While no one should get carried away by a single month’s data, positive growth helps support confidence among consumers and businesses.
“If the economy can maintain a steady, sustainable growth path, that should gradually feed through into higher transaction volumes, greater market confidence and increased investment in new housing supply. For a housebuilding sector that has faced a number of challenges in recent years, any evidence of improving economic stability will be welcomed.
“We’ve got a new PM waiting in the wings and we’re eagerly awaiting more detail about his polices. Some people are talking about a ‘Burnham Bounce’ so it will be interesting to see what impact he, and a potential new chancellor, will have on the economy.”
“The UK economy grew in May, beating expectations and showing signs of resilience despite an uncertain geopolitical environment. While this is a positive, the broader picture still points to a fragile economy with higher energy costs continuing to weigh on businesses and consumers.
Scott Gardner, investment strategist at J.P. Morgan Personal Investing
“Beneath the monthly figures, the services sector continues to do most of the heavy lifting, helping to keep the economy steady. Retail sales rebounded modestly as real pay continued to rise. This tailwind for consumption could fade if private sector wage growth slips below inflation in the months ahead. Construction remains a weak spot, with output falling and industry surveys still signalling subdued activity. Property sales, however, have shown signs of improvement, holding up better than expected in the face of higher mortgage rates.
“With momentum still proving difficult to sustain and the situation in Iran remaining uncertain, this reading highlights the economic challenge facing the next Prime Minister. They will inherit a difficult hand as inflation remains above-target and the Iran conflict continues to dampen growth.”
