Chancellor Rachel Reeves will attempt to reassure City investors at her Mansion House speech next week, following official figures showing the UK economy unexpectedly shrank by 0.1% in May. The contraction, driven by sharp declines in manufacturing and construction, marks the second consecutive month of falling GDP after a 0.3% drop in April.
Reeves is expected to stress that the City is central to her vision for sparking economic growth, as she seeks to regain control of the narrative after worse-than-expected GDP data and a bleak warning from the Office for Budget Responsibility about public finances. She will tell investors that Labour is creating an economy where people and businesses can look to the future with hope and opportunity.
The GDP figures showed declines in construction, oil and gas extraction, car manufacturing, and pharmaceuticals, outweighing a return to growth in the dominant service sector. Business groups have blamed Reeves's £25 billion increase in employer national insurance contributions, which came into force in April, for weighing on growth, alongside uncertainty from Donald Trump's trade war.
Economists noted that the slump may not fully reflect underlying trends, as activity was distorted by businesses shifting output ahead of tax changes and tariff deadlines. Britain's economy grew rapidly in the first quarter of 2025, outstripping other G7 nations with 0.7% expansion, partly driven by exporters rushing to beat Trump's April tariff announcement.
Shadow chancellor Mel Stride warned that Labour's policy U-turns had created a 'ticking tax timebomb', while Ben Jones of the Confederation of British Industry urged Reeves to provide clear reassurance against new taxes on business. The chancellor is expected to highlight recent trade deals with India and the US, and the government's plans for public investment.
