Economy grew by 0.1% in May – industry reaction

The UK’s economy returned to growth of 0.1 per cent in May after contracting the previous month, according to data from the Office for National Statistics (ONS).

In the three months to May, the economy grew by 0.7 per cent after previously slowing in the second quarter. Growth was driven by the services sector, which rose by 0.3 per cent, with other sectors including professional services and information and communications technology also performing well. Other parts of the economy contracted, with output in the construction sector falling by 0.8 per cent (The Times).

ONS Director of Economic Statistics Liz McKeown said “The economy recorded robust growth in the three months to May, though the pace eased slightly as the latest two months showed a weaker picture.

“Services drove growth across the three months with computer programming and advertising again leading the way, while the often-volatile pharmaceutical industry also performed well. This was only partially offset by another weak period for power generation, while architectural and engineering firms also contracted.

“While all three main sectors grew over the three months, the slight growth in GDP in May was driven by services alone, with production and construction both falling back.”

Anna Leach, Chief Economist at the Institute of Directors, said “The latest GDP data for the UK showed modest growth in May, with retail sales were supported by the good weather. However, the Middle Eastern conflict was reported to be disrupting global supply chains and suppressing output in a variety of sectors, including wholesale, warehousing and travel.

“The IoD’s own data shows that businesses are grappling with sharply rising costs and diminished prospects for revenue growth, in an environment in which uncertainty is becoming normalised. Unfortunately, the actions business leaders are taking to increase business resilience are dragging on broader activity, investment and hiring. Meanwhile government policy activity is adding to business uncertainty, rather than alleviating it.

“In an uncertain and volatile world, challenges facing the UK have sharpened, adding greater urgency to the policy response. The Industrial Strategy is an effective tool for channelling government action to support economic growth, but it falls short in execution – both pace and consistency. Ambitions to raise private sector investment cannot be met if the business tax burden keeps increasing and speculation over capital taxes remains high. Policy needs to better support net zero transition in a pragmatic way, recognise that the rising cost of living for households reflects rising government-imposed costs on business, and enact employment law in a more proportionate fashion, if we’re to deliver better living standards across the country.”

Neil Rudge, Chief Banking Officer at Shawbrook, said “The latest release from the ONS indicates that the UK economy is holding strong, posting growth of 0.7% in the three months to May. This will be welcome news to the nation’s SMEs, particularly medium-sized businesses, whose innovation, investment and ability to adapt play a vital role in driving UK growth.

“Whilst businesses continue signalling resilience, the broader macroeconomic and geopolitical environment remains tense and challenging, disrupting supply chains and weighing on confidence. For the SMEs managing these headwinds, securing the right external funding remains crucial to executing their growth plans in a complex market.”

Ben Jones, CBI Senior Lead Economist, said “The economy managed to eke out modest growth in May. The pre-summer heatwave supported retail sales and probably provided a boost to some other consumer-facing sectors as well. But the broader sectoral picture was mixed, suggesting that the UK continues to struggle to build sustained momentum.

“Businesses remain cautious about the outlook for the rest of the year. Uncertainty over the policy outlook and the Autumn Budget, given the looming change in government, is likely to weigh on confidence and investment decisions. The renewed military strikes in the Middle East highlight the risk of further volatility in global energy and financial markets. Our own business surveys weakened in May and softened further in June, with private sector activity expected to remain subdued over the coming months.

“With a new Prime Minister coming into office, the government must restore competitiveness by tackling the growing cost pressures that businesses are facing in every corner of the country. This must include taking direct action to lower the UK’s industrial electricity costs, which are currently 45% more expensive than the G7 median. Lowering industrial electricity costs will give businesses the confidence to invest and unlock stronger economic growth across the UK.”

Suren Thiru, ICAEW Chief Economist, said “This dishearteningly weak rebound is unlikely to ease anxiety over the UK’s economic health as the Iran conflict helped suppress activity in key sectors like construction and industrial production, despite a warm weather uplift to retail.

“May’s uptick is unlikely to have prevented GDP growth stagnating across Q2, with the intensifying squeeze on incomes from elevated energy costs likely to have suffocated June activity, even with the World Cup boost to retail and hospitality.

“This underwhelming outturn highlights the UK’s vulnerability to a prolonged re escalation of US–Iran hostilities, as a sustained spike in oil prices would further damage an already frail economy, strengthening stagflation risks and eroding the incoming Prime Minister’s fiscal headroom.

“The imminent change in Prime Minister risks casting a shadow over the UK economy, with heightened uncertainty over future tax policy likely to make consumers and businesses more reluctant to spend and invest.

“May’s GDP figures make a July rate rise less likely, by giving policymakers hope that a faltering economy can help contain the inflationary pressures reignited by the renewed US–Iran hostilities enough to justify holding off tightening policy.”