Economy back on track as GDP beats expectations in May
The economy grew faster than expected in May, new figures show, as the newly elected Labour government embarks on its “national mission” of restoring sustained economic growth.
Gross domestic product (GDP) grew 0.4 per cent in May, according to data from the Office for National Statistics (ONS), which was ahead of economists’ expectations. They had expected the economy to grow 0.2 per cent.
The strong expansion in May ensured that the economy returned to growth after stagnating in April.
The expansion was led by the all-important services sector, which grew 0.3 per cent on the back of a strong month for retailers. Production rose 0.2 per cent while construction increased 1.9 per cent after recovering from a rainy April.
“The economy grew strongly in May with all the main sectors seeing increases. Many retailers and wholesalers had a good month, with both bouncing back from a weak April,” ONS Director of Economic Statistics Liz McKeown said.
“Construction grew at its fastest rate in almost a year after recent weakness, with house building and infrastructure projects boosting the industry. Meanwhile, manufacturing also grew a little, led by food and drink firms,” she continued.
The figures get the economy back on track after a disappointing April, which was impacted by poor weather.
After falling into a technical recession at the end of last year, the UK recovered and was the fastest-growing G7 economy in the first quarter. McKeown noted that growth over the past three months was the fastest its been in over two years largely due to the services sector.
The leading growth sectors over the past three months have been professional, scientific and technical activity and administrative and support services.
“The near-term outlook for the UK economy has continued to improve,” Yael Selfin, Chief Economist at KPMG UK said.
“Consumer spending is set to be the main driver of activity in the second half of the year, underpinned by stronger consumer sentiment and improving household incomes,” she continued.
Business surveys suggest that GDP will continue growing in the months ahead as firms and households benefit from lower inflation.
Looking at the longer term, though, the picture is less rosy. The UK’s performance since the pandemic has been lacklustre, beating only Germany among G7 economies.
The economy is just 1.8 per cent larger than it was on the eve of the pandemic. The US economy, by contrast, is 8.6 per cent larger.
The new Labour government has put restoring economic growth at the heart of its policy agenda. Commenting on this morning’s figures, Chancellor Rachel Reeves said “delivering economic growth is our national mission, and we don’t have a minute to waste”.
Reeves has already taken steps to relax some key planning constraints and has established a National Wealth Fund to catalyse private sector investment.
Wes Streeting, the new health secretary, has said the NHS will play its part in generating growth, saying the health department would be an “economic growth department” under his watch.