The UK’s economy showed signs of recovery in May after stagnating in April 2024 due to adverse weather, marking a resumption of growth following last year’s recession.
Data from the Office for National Statistics (ONS) revealed a 0.4% increase in gross domestic product (GDP) for May, following zero growth in April when wet weather dampened consumer spending.
In the first week following Labour’s sweeping election victory, Chancellor Rachel Reeves committed to revitalizing the economy, stating it as the new government’s “national mission” to achieve the highest sustained growth among G7 nations.
May’s economic activity surpassed expectations, with City economists predicting only a 0.2% increase.
The growth was broadly distributed across major sectors. The ONS reported a rebound in retail after a sluggish April, alongside robust performances in housebuilding and infrastructure, propelling the construction sector to its fastest growth rate in nearly a year.
Manufacturing also saw gains, driven primarily by the food and drink industry.
The economy expanded by 0.9% over the three months ending in May, the highest rate in over two years.
Labour leader Keir Starmer, the first to secure power from the opposition since Tony Blair in 1997, has taken office amid an economic rebound from a brief recession late last year when household spending was curtailed due to the cost-of-living crisis.
During the election campaign, former Prime Minister Rishi Sunak claimed the economy had “turned a corner” under Conservative leadership, citing a 0.7% expansion in the first quarter of this year.
However, growth stagnated in April, the initial month of the second quarter, as wet weather discouraged consumer spending while many households remained financially strained.
Inflation has reverted to the government’s 2% target after a period of soaring prices, which peaked at 11.1% in October 2022 — the highest rate in 41 years.
Rate Cuts On the Horizon
As inflation eases, the Bank of England is anticipated to begin cutting interest rates, potentially as early as next month, offering some relief to households burdened by rising mortgage costs.
Nevertheless, the markets remain cautious, with the Bank’s upcoming August meeting poised on a knife-edge.
Recent comments from policymakers indicated that persistent inflationary pressures might necessitate a conservative approach.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales shared his thoughts.
“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.”
Suren Thiru
Reeves emphasized the government’s proactive measures to stabilize the economy, stating, “A decade of national renewal has begun, and we are just getting started.”
The latest statistics indicate a solid 0.3% month-on-month growth in the service sector, the backbone of the British economy, marking the fifth consecutive month of recovery. This was fueled by a 2.9% growth in retail trade, rebounding from a 1.8% drop in April.
The hospitality sector also showed resilience, recovering from a damp April, with notable contributions from hotels and, to a lesser extent, restaurants and pubs. Breweries also experienced a positive month.
This follows an April with overall rainfall at 155% of the long-term average, while May recorded the highest temperatures since records began in 1884.
Yael Selfin, chief economist at KPMG UK, acknowledged the improved short-term economic outlook but highlighted ongoing challenges.
“The longer-term outlook for productivity in both the public and private sectors, key drivers of long-term growth prospects, remains weak. The announcement this week of supply-side reforms by the new government is encouraging, but these policies, if successful, will take time to alter the long-term growth trajectory.”
Yael Selfin
The UK’s economic revival in May signals a positive trend, but the journey towards sustained growth and stability continues to face hurdles as the new government embarks on its mission to rebuild and strengthen the nation’s economic foundations.
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