The UK economy returned to growth in May, expanding by 0.1% despite the impact of the Iran war on energy costs, official figures from the Office for National Statistics (ONS) show. The rise follows a 0.1% decline in April and aligns with economists' forecasts.
Services Sector Drives Growth
The ONS reported that services output increased by 0.3% in May, driven largely by a 5.1% surge in scientific research and development. However, this was partly offset by a 0.5% decline in production, including manufacturing, and a 0.8% fall in construction.
Resilience Amid Conflict
Despite April's dip, the economy has shown more resilience to rising energy costs linked to the Middle East conflict than some analysts anticipated. Over the three months to May, GDP growth stood at 0.7%, a slight slowdown from 0.8% in the three months to April.
Liz McKeown, ONS director of economic statistics, said: “The economy recorded robust growth in the three months to May, though the pace eased slightly as the last two months showed a weaker picture.”
Analyst Concerns
However, analysts caution that GDP appears stagnant over the second full quarter. Suren Thiru, chief economist of the ICAEW, described the rebound as “dishearteningly weak” and noted that the Iran conflict suppressed activity in key sectors like construction and industrial production, despite a warm weather boost to retail.
The British Chambers of Commerce (BCC) highlighted the urgent need to support companies with rising costs. Stuart Morrison, BCC research manager, said: “The Iran conflict is having real-world consequences for UK firms. Rising energy prices and shipping disruption are increasing costs and creating uncertainty across the economy.”
Political and Economic Outlook
Chancellor Rachel Reeves, expected to be replaced by Shabana Mahmood, delivered a defiant Mansion House speech this week, defending her record and insisting the economy is on a more stable footing. The International Monetary Fund recently upgraded its UK GDP growth forecast for the year to 1%, up 0.2 percentage points from April.
However, the outlook remains highly uncertain. Oil prices have risen sharply again since hostilities resumed in the Middle East, underlining challenges for incoming prime minister Andy Burnham. The Resolution Foundation estimates that over half of the £23.6bn fiscal headroom Reeves left herself will be wiped out by the war's effects.
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 agreeing that we have restored stability. We’re forecast to be the fastest growing European G7 economy this year and next, inflation is steady, and for the first time since 2004, we are forecast to borrow less this year than the G7 average.”
