The economy showed signs of improvement in May, with official figures reporting a growth of 0.4%. This comes after a stagnant month in April, where there was no change in the gross domestic product. Expectations of a 0.2% increase, as predicted by a Reuters poll of economists, were exceeded.
Liz McKeown, director of economic statistics at the Office for National Statistics (ONS), stated that all major sectors experienced growth in May. Retailers and wholesalers saw a boost in sales, rebounding from a weak performance in April. The construction industry also showed signs of improvement, with its fastest growth in almost a year, driven by an increase in house building and infrastructure projects. Additionally, the manufacturing sector saw modest growth, led by food and drink companies.
Overall, the economy has grown at its fastest pace in over two years in the last three months, with strong growth in the services sector partially offsetting the weaker performance in construction.
Chancellor of the Exchequer, Rachel Reeves, welcomed the positive figures, noting that they pre-date the recent general election. She emphasized the urgency of delivering economic growth and stated that the government has already taken action to strengthen the foundations of the economy and improve the lives of all citizens. Reeves declared that a decade of national renewal has begun and the government is just getting started.
On a quarterly basis, the UK’s recession in the second half of 2023, driven by high interest rates, ended earlier this year as the Bank of England halted its rate hiking cycle. This was done to curb inflation by reducing demand in the economy. However, interest rate cuts have been difficult to achieve due to persistent factors such as rising prices for services and high wage growth.
The new Labour government has implemented measures to bolster the economy, including the creation of a national wealth fund. Lower borrowing costs, which may be possible through a rate cut following the Bank’s next meeting on 1 August, would support these efforts. However, this possibility was not strengthened by a recent statement from a member of the Bank’s rate-setting committee, Jonathan Haskel, who expressed his opposition to a reduction from 5.25% to 5%. His views were echoed by fellow “hawk” Catherine Mann and the Bank’s chief economist, Huw Pill, who stated that the timing of a rate cut is still uncertain. Currently, financial markets are predicting a 50/50 chance of a rate cut next month, compared to 60% at the start of the week.
