After taking a knock to activity due to a trio of bank holidays, including one for King Charles’s coronation, the economy of Britain contracted by 0.1% in May.
The Office of National Statistics reported that the gross domestic product (GDP) decreased on the month, following growth of 0.2% in April. The decreases in manufacturing, energy generation, and construction were all attributed to the fact that some industries were impacted by one fewer working day than is typical for them. Economists in the city had anticipated a larger decline of 0.3%.
Although the celebrations surrounding the coronation served to offer a lift for some businesses, establishments in the United Kingdom, including pubs, bars, and restaurants, saw a decrease in consumer spending following a prosperous month of April. Employment agencies also struggled due to a downturn in hiring demand.
According to the ONS, industries such as the arts, entertainment, and recreation saw benefits as a result of the additional bank holiday.
These numbers come at a time when the Bank of England is getting ready to raise interest rates for the 14th consecutive time in response to growing concerns about high inflation. This will put additional pressure on consumers and businesses, which is an event that is anticipated to drag down economic growth in the months to come.
According to Suren Thiru, economics director at Institute of Chartered Accountants in England & Wales, the most recent numbers are not anticipated to provide the central bank with a reason to stop their policy of raising interest rates.
“However, given the long time lag between rate rises and its effect on the real economy, tightening further risks damaging our growth prospects by overcorrecting for past errors,” he warned. “Tightening further risks damaging our growth prospects by overcorrecting for past errors.”
“While there is optimism that the economy will improve in June, there is a significant risk that the prime minister will fail to meet his promise to get the economy growing due to the significant squeeze on activity caused by high inflation, stealth tax hikes, and rising interest rates.”
The economy did not show any signs of expansion over the extended three-month period that ended in May, as activity in the United Kingdom’s major service sector remained unchanged. While construction increased by 0.2%, production, which includes manufacturing, energy production, and mining, increased by 0.4%. Construction is considered part of production.
“Growth is down again, families are worse off, and the impact of the Tory mortgage bombshell is reaching far and wide,” said Rachel Reeves, the shadow chancellor.
“This Conservative government appears intent on leading us down a path that will result in low growth and increased economic uncertainty.”
Jeremy Hunt, the current chancellor of the United Kingdom, stated that the best approach to get growth going again was to reduce the burden that is being placed on people by reducing inflation. Even though there was an extra bank holiday in May, rising inflation continues to be a drag anchor on economic growth, he added. “While there was an extra bank holiday in May, growth had an impact.”
In recent months, the economy of Britain has performed, on the whole, more strongly than expected. This has been made possible by a decline in global energy prices, an increase in consumer confidence, and a jobs market that has shown remarkable resilience.
Late in 2018, experts expressed concern that the United Kingdom would already be in a recession by this point. The expansion of the economy during the first quarter was identical to the performance during the last three months of 2022, coming in at 0.1%.
There was a widespread expectation that there would be a slowdown in activity during the month of May due to the fact that additional bank holidays often result in a decrease in production. This is due to the fact that the impact of one fewer day of work in offices, factories, and construction typically is not enough to counteract the increase in leisure activities.
According to Paul Dales, chief UK economist at the consulting firm Capital Economics, Theresa May’s performance has been above and beyond what was anticipated. It is difficult to determine the genuine state of the economy due to the bank holiday and the strikes that have taken place. However, our impression is that the activity below the surface is still expanding, albeit at a glacial pace.