UK economy gathers momentum in May

11th Jul 2024 07:03

(Sharecast News) - The UK economy grew by more than expected in May, official data released on Thursday showed.

According to Office for National Statistics, monthly real GDP was estimated to have grown by 0.4% in May, having shown no growth in April.

Analysts had been expecting a 0.2% uptick.

Leading the improvement was the construction sector, which grew at its fastest rate in almost a year. It reversed April's 1.1% slide - when wet weather hit activity - with a 1.9% uplift.

Production output also improved, however, nudging up 0.2% following a 0.9% decline a month earlier.

Services growth was unchanged at 0.3%.

In the three months to May, GDP rose by 0.9%, driven by a 1.1% uplift in services output. It was the quickest pace of growth for over two years, the ONS noted.

Liz McKeown, director of economic statistics at the ONS, said: "The economy grew strongly in May, with all three main sectors seeing increases. Many retailers and wholesalers had a good month, with both bouncing back from a weak April.

"Construction grew at its fastest rate in almost a year after recent weakness, with house building and infrastructure projects boosting the industry."

Growth in manufacturing was led by food and drink firms, McKeown added.

Ashley Webb, UK economist at Capital Economics, said the stronger-than-expected rise would be welcomed by new chancellor Rachel Reeves, who earlier this week said kickstarting growth was a "national mission".

He continued: "The improving economic outlook suggests the government may benefit from the economic recovery being stronger than most forecasters anticipate.

"After stalling in April, the rise in GDP in May was the fourth increase in the past five month, which supports the idea that the dual drags on activity from higher interest rates and higher inflation are starting to fade.

"Our forecast for a 0.2% month-on-month rise in GDP in June would now result in a 0.7% quarter-on-quarter increase in the second quarter, up from our previous forecast of 0.4%."

Peter Arnold, UK chief economist at EY, said: "The EY Item Club's expectation that GDP continues to grow at a decent pace in the second half is founded mostly on optimism about consumer prospects. Lower inflation and still-strong pay growth should combine to deliver further solid improvements in household spending power.

"Thus far, strong real income growth has only translated into a tepid recovery in spending, as consumers have remained cautious. But there are signs from consumer surveys that the mood is changing."

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "This snapshot of an economy growing a bit faster than forecast could make Bank of England policymakers that bit more reticent about voting for an interest rate cut on 1 August.

"Huw Pill, the BoE's chief economist, is the latest to warn about the persistence of inflation in a speech yesterday.

"Although he stressed it was a question of when, not if, interest rate cuts will come, the possibility of a summer rate cut is fading, with a vote on 1 August expected to be on a knife edge."

The cost of borrowing currently stands at a 16-year high of 5.25%.