May UK economic contraction raises concerns amid global headwinds
Britain’s economy experienced an unexpected contraction for the second consecutive month in May, raising concerns domestically for finance minister Rachel Reeves amid a progressively uncertain global landscape, as indicated by official data released on Friday. The Office for National Statistics reported a 0.1 per cent decline in gross domestic product, following a 0.3 per cent decrease in April.
The vast majority of economists anticipated a 0.1 percent increase in gross domestic product compared to April’s figures. Although the services sector managed to achieve a modest increase, reductions in industrial production and construction negatively impacted total output. The reading indicates potential downside risks to the prevailing expectations regarding economic growth in the second quarter of 2025, following a notable surge earlier in the year. The development has heightened anticipations regarding a potential reduction in interest rates by the Bank of England in the forthcoming month. Britain’s economy experienced significant expansion in the first quarter of 2025, surpassing the growth rates of other nations within the Group of Seven advanced economies. In May, the Bank of England adjusted its full-year growth forecast to 1 percent.
Nonetheless, a significant portion of the growth observed in early 2025 can be attributed to the impending expiration of a tax incentive for certain home purchases in April, which stimulated the sector ahead of the deadline, alongside a surge in manufacturing activity aimed at circumventing increased US import tariffs. The Bank of England has indicated its belief that the economy expanded by approximately 0.25 percent during the second quarter of 2025. For the quarter to register any growth, the ONS indicated that June’s monthly data must reflect at least a flat reading, provided there are no revisions to the data from previous months.
A month-on-month contraction of 0.4 percent or greater for June would signal a quarterly contraction. “The second consecutive decline in monthly real GDP in May will heighten apprehensions that the government’s growth strategy has been undermined by both external and domestic shocks,” stated Raj Badiani, economics director for Europe at S&P Global Market Intelligence.
