GDP fell by 0.1% in May – industry reaction

Latest ONS data has shown that GDP unexpectedly fell by 0.1 per cent in May, marking a second consecutive monthly decline.

This follows April’s decline of 0.3 per cent and underscores the challenge the Government’s faces in terms of the overall economy. Manufacturing, retail, and energy sectors saw notable drops, including weaker car production and pharmaceuticals. Despite May’s contraction, the economy grew 0.5 per cent over the broader three-month period.

ONS Director of Economic Statistics Liz McKeown said “The economy contracted slightly in May with notable falls in production and construction, only partially offset by growth in services. However, across the latest three months as a whole, the economy still grew. This reflected strength earlier in the year that resulted, in part, from some activity being brought forward to February and March.

“May’s fall in production was driven by oil and gas extraction, car manufacturing and the often-erratic pharmaceutical industry.

“While services grew overall in May with a strong month for legal firms, which recovered from a weak April, and computer programming, these were partially offset by a very weak month for retail sales.”

Anna Leach, Chief Economist at the Institute of Directors, said “May’s GDP data seems again to be affected by activity shifting around government policy, making it difficult to read underlying trends. For example, there was a further decline in car manufacturer driven by US tariffs as well as model changeovers and restructuring.

“The UK’s underlying growth is tepid and beset with risk. Despite the welcome launch of a plethora of government strategies, and a Spending Review which stuck to the pre-set envelope, we’re back worrying about tax rises in the forthcoming Budget. Any further rise in the tax take from business risks damaging capital flight from the UK. Tight growth-positive messaging from government will be crucial to provide reassurance to business and to avoid a further confidence and growth hit from damaging speculation. A number of supports to growth remain in tact, including an expected downward pathway for interest rates and robust consumer balance sheets. The government should build on these and other pockets of strength by accelerating de-regulation and planning reform to help deliver the growth mission.”

Mike Randall, CEO, Simply Asset Finance said “This is a wake up call highlighting that the UK’s economic growth remains fragile. But Britain’s businesses can’t grow if they can’t access the right finance at the right time. This remains a frustrating but solvable sticking point for thousands of firms across the country. It requires building a truly dynamic financial ecosystem that works for businesses —one where traditional banks, alternative lenders and fintechs collaborate to deliver capital with speed and precision.

“Much of the Chancellor’s upcoming Mansion House speech is expected to focus on financial reform, but she must deliver action rather than words. With ambitious growth targets for the UK economy to meet, we cannot afford to leave growth on the back-burner.”

Ben Jones, CBI Lead Economist, said “Flatlining growth in May highlights the ongoing pressures facing the UK economy, with manufacturing and retail struggling, alongside a patchy performance across other parts of the services sector.

“Today’s data suggests that a sluggish recovery remains the likeliest path in the near-term amid persistent trade uncertainty, a loosening labour market and slowing growth in real incomes. And with business costs rising, many firms are maintaining a cautious approach to investment.

“With growing fiscal challenges and the Autumn Budget on the horizon, the Chancellor must provide clear reassurance—no new taxes on business and instead offer a commitment to work alongside firms to dismantle barriers to growth. An open and collaborative partnership between business and government is crucial to deliver the conditions for sustained economic growth.”

David Bharier, Head of Research at the British Chambers of Commerce said: “Today’s GDP figures, showing growth of 0.5% in the three months to May, but a fall of 0.1% in the month, reinforce the view that UK growth remains fragile, lacking sustained drive.

“Production and construction both saw falls of output in May of 0.9% and 0.6% respectively, with tariffs likely a factor. While the month was weak, stronger performances in March and April have balanced out the dip for the three months.

“Strong, sustainable growth is the only route out of the Chancellor’s current fiscal trap. But as our latest research shows, most SMEs are not reporting increased sales or renewed investment, and sentiment remains weak following the rise in employer NICs.

“Rapid growth in a mature economy like the UK is a tall order. But the country’s fundamentals remain strong and there are real opportunities for a step-change – particularly in AI, life sciences, and advanced manufacturing.

“Our Blueprint for Growth, published earlier this month, outlines a series of practical policy proposals. Businesses need to see real progress on the Government’s various economic strategies, momentum on global trade talks, and crucially a simpler tax and regulatory system that supports growth.”

Suren Thiru, ICAEW Economics Director, said “These downbeat figures undoubtedly increase anxiety over the health of the UK economy, with tumbling construction and manufacturing activity causing a disheartening decline in overall output.

“May’s downbeat outturn means a contraction in GDP across the second quarter looks a racing certainty, as sinking business confidence amid intensifying geopolitical turmoil will have dampened growth in June, despite a boost from the warm weather.

“The UK’s growth trajectory in the near term is likely to tilt downwards as any uplift from higher consumer and government spending is hampered by escalating business caution, amid fears of further tax rises in this Autumn’s Budget.

“The lack of momentum in the UK economy indicated by these sluggish figures means that an August interest rate cut currently looks inevitable, despite the recent spike in inflation.”