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After stagnating in April, the British economy grew by 0. 4% in May. That’s double what economists expected, according to a Reuters poll.
On a quarterly basis, the economy grew by 0. 9%, the figure since January 2022. The most recent figures were released this morning via the Office for National Statistics (ONS).
The sector was the main driver of growth, with an increase of 0. 3% monthly and 1. 1% quarterly.
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Production and structure also increased monthly (0. 2% and 1. 9%, respectively). However, production remained strong for three months, while output in the structures sector fell 0. 7%.
The ONS suggests that the combined structural knowledge can be explained in part through the changing weather patterns we have experienced this spring, with a rainy April followed by a May.
If Prime Minister Keir Starmer is already in excellent shape after his election victory last week, those numbers have most likely boosted his morale even further. The new government has promised to ensure secure economic growth, and the latest figures may suggest that the trend is turning in its favor.
Make no mistake: there is still work to be done to make the United Kingdom’s economy less sluggish, including by increasing investment and encouraging more people to work. However, inflation is now back to target and the Bank of England appears to be on its way. on the verge of cutting interest rates.
Once rates are lowered, we may see a further acceleration of the expansion as loan and debt bills become less burdensome and pressures on consumers and businesses ease.
The new government has a lot of work to do and will be content to take advantage of any tailwinds it can catch. We are in the long run for the British economy.
While the most recent figures are a step in the right direction, Rob Morgan, chief investment analyst at Charles Stanley, warns observers to get carried away.
“The United Kingdom’s economic record shows significant room for improvement for the new Labour government,” he says. “The United Kingdom economy has weakened as a result of the pandemic, an energy crisis and a cost-of-living crisis that has been very complicated. “for consumers in the United Kingdom. ‘
Despite this, Morgan acknowledges that “the tepid expansion now seems to be heating up as we approach the second part of the year. “It also highlights that first-quarter GDP was higher than expected, having been revised to 0. 7% (from 0. 6%) after a slight increase in customer spending.
This comes after the UK plunged into a brief, shallow recession in late 2023.
Overall, the economy has proven more resilient than many expected in the face of emerging interest rates. The Bank of England has maintained its key interest rate at 5. 25% for almost a year, its level in 16 years.
The interest rate cuts are expected to materialize later this year, creating a more conducive environment for growth. However, on their own, they will bring about the kind of stimulus that many hope for.
According to Chancellor Rachel Reeves, new research by the Treasury shows that if the United Kingdom economy had grown at the average rate of other OECD economies over the past thirteen years, it would have been more than £140 billion larger.
The new government has pledged to make expansion its “national mission” by unlocking personal investment and reforming the plan-making formula to “make Britain build”.
However, it will be limited in spending, as it has committed to abide by strict budgetary rules and not to increase the source of income taxes, national insurance or VAT. We will know more once the first Labour budget is presented.
“The double-edged sword for markets is that if GDP rises too much, the Bank of England’s rate cut resolution will most likely be a little more difficult,” says Matt Britzman, senior equity analyst at Hargreaves LansdownArray.
A recent Reuters poll suggests that most economists expect a first cut in August rather than September, but economic signals such as core inflation, facilities inflation and wage expansion are proving to be quite fragile.
The next inflation report will be released on July 17 and the market’s next insight into hard work will hold a day later. These can play a key role in deciding when to edit for the first time.
Katie has a background in investment writing and is interested in all things private finance, politics, and investing. She likes to translate complex topics into easy-to-understand stories so that other people get the most out of her money.
Katie believes that making an investment shouldn’t be confusing and that demystifying it can help other people in general in their lives.
Prior to joining the MoneyWeek team, Katie worked as an investment editor at Invesco, an asset monitoring company. She joined the firm as a graduate in 2019. While there, she wrote about economics, bond markets, selected investments and UK shares.
Katie loves to write and studied English at the University of Cambridge. Outside of work, she enjoys going to the theater, reading novels, traveling, and visiting new restaurants with friends.