The UK economy returned to growth in May, with GDP rising 0.1%, according to the Office for National Statistics (ONS). This rebound follows a 0.1% contraction in April and aligns with economists’ forecasts, despite the ongoing Iran war driving up energy costs.
Services sector leads growth
Services output increased by 0.3% in May, the ONS reported, but this was partially offset by a 0.5% decline in production—including manufacturing—and a 0.8% fall in construction. The strongest contributor to monthly output was scientific research and development, which surged 5.1%.
Over the three months to May, GDP growth stood at 0.7%, a slight slowdown from 0.8% in the three months to April. Liz McKeown, ONS director of economic statistics, said: “The economy recorded robust growth in the three months to May, though the pace eased slightly as the last two months showed a weaker picture.”
Analysts warn of stagnation
Despite the positive headline, analysts cautioned that GDP remains likely stagnant over the second full quarter. Suren Thiru, chief economist at the ICAEW, described the rebound as “dishearteningly weak” and noted it “is unlikely to ease anxiety over the UK’s economic health as the Iran conflict helped suppress activity in key sectors like construction and industrial production, despite a warm weather uplift to retail.”
The British Chambers of Commerce stressed the urgent need to support businesses with rising costs. Stuart Morrison, research manager at the BCC, stated: “The Iran conflict is having real-world consequences for UK firms. Rising energy prices and shipping disruption are increasing costs and creating uncertainty across the economy.”
Political and fiscal implications
Chancellor Rachel Reeves, expected to be replaced by Shabana Mahmood in the incoming cabinet, delivered a defiant Mansion House speech defending her economic record. The International Monetary Fund recently upgraded its UK GDP growth forecast for the year to 1%, up 0.2 percentage points from April. However, the outlook remains highly uncertain due to renewed hostilities in the Middle East, which have driven oil prices sharply higher.
The Resolution Foundation thinktank estimates that more than half of the £23.6bn fiscal headroom Reeves had against her rules will be wiped out by the war’s effects. A Treasury spokesperson said: “We have the right economic plan which has put the UK in a much stronger position than two years ago with the fastest growth in the G7 in the first quarter and the OECD agreeing that we have restored stability. We’re forecast to be the fastest growing European G7 economy this year and next, inflation is steady, and for the first time since 2004, we are forecast to borrow less this year than the G7 average.”
