The UK economy is expected to have remained stagnant in May, with some economists forecasting flat or negative growth following a 0.1% contraction in April, as the ongoing US-Israel war with Iran continues to weigh on economic activity. The Office for National Statistics (ONS) is set to publish May's gross domestic product (GDP) figures on Thursday, amid global turbulence stemming from the conflict.
GDP Performance and Key Sectors
After a sharp pullback from growth of 0.3% in March and 0.4% in February, April's decline marked the first contraction since August last year. The downturn was primarily driven by a fall in GDP for the services industry, the most dominant sector in the UK economy, which offset growth in construction and manufacturing. Pantheon Macroeconomics analysts forecast another weak performance for services in May but a more mixed picture across the wider economy, with subsectors like energy supply boosted by higher oil prices. They expect GDP to show no growth in May.
Impact of Energy Costs and War
Surging fuel and energy costs squeezed businesses and households in April and remained elevated in May, though wholesale prices have eased in recent weeks. Chancellor Rachel Reeves commented that the war was “not a war we wanted or joined, but one that will have an impact at home.” Deutsche Bank, in a more downbeat outlook, predicted a 0.1% decline in May GDP. Its chief UK economist Sanjay Raja noted that services activity remained “sluggish” in May, including information, professional and financial services, and real estate.
Glimmers of Hope and Future Boost
However, Raja added that it was “not all bad news” for the economy, pointing out that “anecdotally, retailers pointed to a combination of promotions and warmer weather boosting demand for items such as outdoor furniture and fans.” Looking ahead, he suggested that some sectors could get a boost in July as England progresses further in the Fifa World Cup, with pubs and bars benefiting from extended opening hours and busier periods.
