Rachel Reeves to face fresh blow with sluggish growth data
The UK economy is expected to have grown by a miserly 0.1 per cent in May, consensus among City economists suggests, undermining Chancellor Rachel Reeves’ commitment to deliver higher growth.
The government’s difficult two weeks could get a whole lot worse on Friday morning when the Office for National Statistics (ONS) publishes data on GDP growth for the month of May.
The latest set of official data, which is projected to show sluggish growth, would likely knock government spirits once again after it rowed back on welfare savings worth around £6bn.
The Office for Budget Responsibility (OBR) also provided a damning assessment of the bleak future that awaits Rachel Reeves and the Treasury, with public finances in a “vulnerable” state following government U-turns and higher tariffs introduced by President Trump.
But the chancellor may be more immediately concerned about poor results from previous months suggesting the UK economy is on a shaky footing following a 0.3 per cent contraction in April.
An earlier 0.7 per cent uptick in GDP in the first three months of the year was also undercut by analysis from the Bank of England suggesting underlying growth was closer to zero.
Analysts believe the services sector is likely to have kept the UK economy afloat in May, with industrial output, construction and distribution likely to have been a “large drag” on growth.
“We see scope for a rebound in output in the large professional services sector, which had a particularly bad April,” economists at Oxford Economics, who went against consensus by predicting GDP data to come in flat in May, said.
Rachel Reeves to set out plan for the City
Thomas Pugh, chief economist at the consultancy RSM UK, said the expected return to growth will partly conceal more disturbing data on hospitality, retail and other consumer-facing services wrestling with hikes to employment taxes.
Manufacturing also stands to suffer from a decline in activity, Pugh predicted.
“The sector is yet to give back all its huge gain in February from tariff front-running,” Pugh said.
But Pantheon Macroeconomics’ Robert Wood and Elliott Jordan-Doak struck a bullish tone about the near-future of the UK economy, with businesses set to shrug off trade turmoil and higher taxes.
“We are increasingly confident that GDP and job gains will rebound smartly after surprisingly large falls in April and May, respectively,” the economists said.
The 0.3 per cent month to-month fall in GDP in April and shocking 109,000 monthly drop in payrolls in May seem to have convinced the consensus that the UK economy is turning down. We disagree; we think growth is rebounding after a tariff hit in April and that job declines are past their worst.”
Rachel Reeves will address professional and financial services leaders at her Mansion House speech next week where she will likely unveil changes to regulatory powers held by the Financial Ombudsman Service (FOS) and ISAs.