Economy expands by 0.4% in May – industry reaction

Latest data from the Office for National Statistics (ONS) has shown that the UK economy grew faster than expected in May, expanding by 0.4% after seeing zero growth in April. This came as the services sector, which covers businesses such as shops, bars and restaurants, grew by 0.3%, while the construction sector jumped by 1.9%. In the three months to May 2024, the economy grew by 0.9% compared with the previous three months.

Commenting on the figures, ONS Director of Economic Statistics Liz McKeown said “The economy grew strongly in May with all the main sectors seeing increases. Many retailers and wholesalers had a good month, with both bouncing back from a weak April.

“Construction grew at its fastest rate in almost a year after recent weakness, with house building and infrastructure projects boosting the industry. Meanwhile, manufacturing also grew a little, led by food and drink firms.

“Across the last three months as a whole, the economy grew at its quickest pace for over two years with strong growth across services, partially offset by the weaker longer-term performance from construction.”

Martin McTague, National Chair of the Federation of Small Businesses (FSB), said “The good growth registered in May picks up the momentum from the strong economic expansion seen in the first quarter, following April’s lull.

“To achieve the Prime Minister’s ambition to drive wealth creation in every community, the new Government should look to quickly build on this result with further pro-growth policies targeted at small firms and self-employed people.

“The King’s Speech next week will provide an excellent opportunity for the new Labour Government to show it is truly committed to the success of the small business community.

“Shortly after the General Election was called, we pulled together over 150 growth-focused recommendations to form a manifesto for small businesses and the self-employed.

“In it, we highlighted issues such as the need for planning reform and a Small Housebuilders Strategy to ensure that smaller construction firms are at the heart of delivery plans for new homes and upgraded infrastructure, as well as drawing back foreign visitors who have been tempted elsewhere by reintroducing an expanded tax-free shopping scheme, which could add billions to the economy.

“In order to invest in growth, small businesses need access to affordable finance of various kinds, without lenders discouraging risk-taking by demanding personal guarantees as a blanket policy. We were pleased to secure the evolution of the Recovery Loan Scheme into the Growth Guarantee Scheme, which is now live and making more small business bank loans viable.

“As a recipe for the growth we all need, we hope the new Government makes sure every decision it takes considers the needs of small firms, as well as the indispensable contribution they make to the economy.”

Anna Leach, Chief Economist at the Institute of Directors, said “The warmest May on record helped stoke a stronger-than-expected recovery in GDP growth, driving activity in consumer-facing sectors like retail as well as supporting construction activity. It’s good to see manufacturing picking up as well, meaning that all the main sectors contributed to growth.

“Growth is expected to be supported this year by improving real incomes and a strong labour market, with lower interest rates further out likely to support lending and business investment. But stepping out of the minutiae of GDP data, the UK’s growth remains precarious. IoD members were cautious on the outlook for the year ahead in the run-up to the election, with IoD data showing a drop-off in confidence, investment and hiring intentions.

“The new government’s commitment to delivering growth is heartening, and their early steps to deliver on that commitment are encouraging. Early announcements on the National Wealth Fund and on planning are welcome indications of the importance that investment will play in changing the UK’s growth story.”

Suren Thiru, ICAEW Economics Director said “These figures confirm a robust rebound in economic activity as stronger services and construction output helped return the economy to growth. May’s GDP uptick may well have been followed by a June washout, with wet weather likely to have stifled output from key sectors of the economy, despite a helping hand to hospitality and some retailers from Euro 2024.

“Longer-term, the new government faces an uphill struggle to achieve its ambition to significantly uplift the UK’s growth trajectory, unless it can substantially increase productivity and tackle economic inactivity.

“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.”