UK economy shrinks slightly

"GDP numbers paint a confused picture of the state of the economy"

UK economy shrinks slightly

The UK’s monthly gross domestic product (GDP) is estimated to have fallen by 0.1% in May after a 0.2% growth in the previous month, the Office for National Statistics (ONS) has reported.

The economy has shown no growth in the three months to May, ONS data has revealed.

The main contributor to the decrease in monthly GDP in May was production output, which fell by 0.6%, following a 0.2% fall in the previous month. The construction sector also fell by 0.2%, following a larger fall of 0.9% in April.

According to the latest GDP monthly statistics, services output was unchanged in May after a 0.3% growth in April, while output in consumer-facing services fell by 0.2% following growth of 1.1%.

“Stagflation has well and truly arrived,” remarked Graham Cox, founder of Self Employed Mortgage Hub. “No growth across any sector of the economy, including the usually strong services sector, which flatlined in May.

“The only positive to be taken from these figures, if you can call it that, is that the economic medicine appears to be working. This might mean there is less pressure to raise interest rates, though the jury is still out on that one.”

Nicholas Hyett, investment manager at Wealth Club, said May’s GDP numbers “paint a confused picture of the state of the economy.”

“While the economy shrank modestly in May, that could be down to the extra bank holiday for the Coronation, as well as industrial action across the health, rail, and education sectors,” he added. “If true, that would suggest the underlying picture is of an economy that remains strong, despite the Bank of England’s attempts to cool activity with higher interest rates.”

Hyett, however, pointed out that there are signs the economy could be running out of gas for the longer term.

“The housing market seems to be slowing, with less construction activity in housebuilding, and recruitment is seeing weakness too – potential canaries in the coal mine that suggest the economy has reached a turning point and is sliding from growth to contraction,” he continued.  

“We suspect the bank will take no chances and continue to hike rates, but the job of balancing inflation and economic growth isn’t getting any easier.”

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