The UK economy has contracted unexpectedly for a second month in May, shrinking by 0.1%, though not as sharply as the 0.3% decline in April.
However, analysts had expected growth of 0.1% which was achieved by the services sector, but the manufacturing sector fell by 0.9% and construction by 0.6%.
Oil and gas extraction was down, while car-making and the “often erratic” pharmaceutical industry were weaker.
The figures will dent the message being put out by the Labour government that the economy is recovering. Ministers have been quoting the UK as having the fastest growth among G7 nations, which was the case in the first quarte r when GDP expanded by 0.7%.
Experts believe that was inflated by businesses bringing forward spending to the first three months of the year to avoid President Trump’s tariffs which came into effect in April.
Retail figures, also published today, show Scottish footfall decreased by 3% in June (YoY), down from a decline of 0.7% in May. Total UK footfall fell by 1.8% in June (YoY), down from a 1.7% fall in May.
There is now speculation that Chancellor Rachel Reeves will be forced to break her promise not raise taxes after last year’s rise in national insurance contributions as well as a hike in the living wage.
More tax rises or spending cuts in the autumn budget are likely after the government rolled back reforms to the welfare system that would have resulted in £6.25 billion of fiscal consolidation.
Ms Reeves responded to this morning’s data by saying: “Getting more money in people’s pockets is my number one mission. While today’s figures are disappointing, I am determined to kickstart economic growth and deliver on that promise.
“The choices we have made in our first year in government have seen us extend the £3 bus fare cap, fund Free School Meals for over half a million more children, press ahead with plans to deliver free breakfast clubs for every child in the country and increase the National Minimum and National Living Wage, giving a pay rise to three million workers.
“There’s more to do, that’s why in the Spending Review we boosted investment and jobs, through better city region transport and record funding for affordable homes, as well as backing major projects like Sizewell C.”
Ben Jones, CBI lead economist, said: “Flatlining growth in May highlights the ongoing pressures facing the UK economy, with manufacturing and retail struggling, alongside a patchy performance across other parts of the services sector.
“Today’s data suggests that a sluggish recovery remains the likeliest path in the near-term amid persistent trade uncertainty, a loosening labour market and slowing growth in real incomes. And with business costs rising, many firms are maintaining a cautious approach to investment.
“With growing fiscal challenges and the Autumn Budget on the horizon, the Chancellor must provide clear reassurance—no new taxes on business and instead offer a commitment to work alongside firms to dismantle barriers to growth.
”An open and collaborative partnership between business and government is crucial to deliver the conditions for sustained economic growth.”
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