The UK economy flatlined in May, with gross domestic product (GDP) rising a meagre 0.1% following a 0.1% contraction in April, according to figures from the Office for National Statistics (ONS). The modest recovery was driven by a 0.3% rise in the services sector, but this was partly offset by falls of 0.5% in production and 0.8% in construction.
Economic Momentum Lost After Strong Start
The latest figures suggest the economy has lost momentum after a stronger-than-expected start to the year. GDP grew by 0.3% in March before contracting in April – the first monthly decline in eight months – as the impact of the Iran war filtered through to the economy. In the three months to May, GDP rose 0.7%, down from an upwardly revised 0.8% in the three months to April.
The ONS said businesses across a range of industries, including manufacturing, hospitality, travel and entertainment, reported that the conflict in the Middle East had affected activity. “A common theme of comments received by the monthly business survey was disruption in global supply chains because of the conflict in Iran,” according to the ONS.
Political Implications for Chancellor Reeves
The weak growth figures are seen as a final blow for Chancellor Rachel Reeves, with Andy Burnham widely expected to become the next Prime Minister and replace her as part of a wider cabinet reshuffle. A Treasury spokesperson said: “We have the right economic plan, which has put the UK in a much stronger position than two years ago with the fastest growth in the G7 in the first quarter, and the OECD (Organisation for Economic Co-operation and Development) agreeing that we have restored stability.”
Outlook and Expert Views
Experts at Pantheon Macroeconomics said the May increase puts the economy on track for overall growth of 0.3% in the second quarter, down from 0.6% in the first three months. However, nearly five months of conflict in the Middle East, and with the US-Iran peace deal having largely fallen apart, are set to see soaring fuel and energy costs impact growth over the year.
Fergus Jimenez-England, an associate economist at the National Institute of Economic and Social Research (Niesr), said the incoming Prime Minister will need to make economic stability a top priority. He said: “Today’s data confirm that growth remains fragile, with both production and construction sectors falling, and services keeping the economy afloat. The growth outlook is further threatened by volatile energy costs, which will likely dampen economic activity in the near future. As energy prices climb once more, all eyes are now on the new Prime Minister to deliver much-needed stability.”
Both the OECD and the International Monetary Fund recently said UK growth would be better than first feared in 2026, with upgrades to the outlook. Pantheon economist Rob Wood said the resilience so far means interest rates are set for a “prolonged period” on hold, but added “solid growth is one reason that a hike is more likely than a cut”. The Bank of England will next decide on rates on July 30, when it will also publish its latest quarterly forecasts on the economy.
