Cliff Notes
- The UK Economy contracted by 0.1% in May, following a 0.3% contraction in April, surprising economists who anticipated a 0.1% growth.
- Manufacturing and construction faced declines, primarily due to reduced car production and lower oil and gas extraction, despite positive growth in the services sector.
- The Chancellor expressed disappointment while noting a revised growth figure of 0.4% for March, indicating potential recovery and prompting expectations of an interest rate cut.
UK economy unexpectedly shrinks for second month in a row | Money News
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The UK economy unexpectedly shrank in May, even after the worst of Donald Trump‘s tariffs were paused, official figures showed.
A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).
Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.
It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.
A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.
A ‘disappointing’ but mixed picture
It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.
“I am determined to kickstart economic growth and deliver on that promise”, she added.
But the picture was not all bad.
Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.
It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.
The expansion in March means the economy still grew when the three months are looked at together.
While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.
Such a cut would bring down the rate to 4% and make borrowing cheaper.
Why did the economy shrink?
The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.
The fall was not larger as the services industry – the largest part of the economy – expanded with law firms and computer programmers having a good month.
It made up for a “very weak” month for retailers, the ONS said.
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