The UK economy unexpectedly shrank by 0.1% in May, following a 0.3% decline in April, raising concerns about a possible overall contraction in the second quarter. The figures from the Office
for National Statistics (ONS) contrast with economists' forecasts, which had predicted modest growth of 0.1%.
This marks a second consecutive month of negative growth, increasing pressure on Chancellor Rachel Reeves, whose central promise is to revive economic growth. Reacting to the data, Reeves acknowledged the setback, calling the numbers “disappointing” but reaffirmed her commitment to boosting growth and putting "more money in people’s pockets."
If GDP were to fall by 0.4% or more in June, it would confirm a second-quarter economic contraction — a major challenge for the new government.
The weaker-than-expected data also affected financial markets, with the pound falling 0.2% against the US dollar and 0.1% against the euro.
Shadow Chancellor Mel Stride warned the figures could lead to increased pressure for tax hikes in the autumn.
Economists believe the weak performance strengthens the case for the Bank of England to cut interest rates in August. Suren Thiru of the Institute of Chartered Accountants in England and Wales noted that optimism from consumer and government spending is being dampened by business concerns over possible future tax increases.
According to the ONS, the decline in GDP was driven largely by a significant drop in manufacturing output — down 1%, the worst monthly fall since July 2023 — and a 0.6% drop in construction. Services grew slightly by 0.1%, with strong performance in legal services and computer programming helping offset weak retail sales.
Liz McKeown of the ONS said that while May saw a slight dip, the economy still grew over the past three months overall, partly due to earlier activity being brought forward to February and March.
Looking ahead, economists are divided. The EY Item Club’s Matt Swannell said a quarterly contraction is “all but certain,” while Rob Wood of Pantheon Macroeconomics suggested growth could still rebound in June, attributing recent declines to temporary factors like US tariff concerns. Photo by It's No Game, Wikimedia commons.