The UK economy unexpectedly contracted for a second month in May, raising new concerns for Chancellor of the Exchequer Rachel Reeves. According to the Office for National Statistics, Gross Domestic Product (GDP) shrank by 0.1%, following a 0.3% drop in April. Economists had expected 0.1% growth in May, with the services sector contributing slightly despite contraction, while declines in industrial production and construction negatively impacted overall growth.
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Following the growth boom at the beginning of 2025, the UK economy is expected to experience slower-than-expected growth or stagnation in the April-June period of this year. This strengthens the possibility of a Bank of England interest rate cut next month.
ICAEW Director of Economics Suren Thiru said, “This slowdown in the UK economy makes a rate cut in August inevitable.”In the UK economy, which has been struggling under the impact of Trump’s trade wars, the government’s efforts to boost growth have been limited. Exports, particularly to the US, showed a high increase before the tariffs, but experienced a significant drop in April, and in May export levels fell back to three-year levels.
Economists say it is increasingly likely that Finance Minister Reeves will resort to further tax increases in the upcoming budget.
Reeves said, “Although today’s data is disappointing, I am determined to revive economic growth.” The UK economy showed strong growth in the first quarter of 2025, but this growth was largely driven by the end of tax advantages and purchases made before US tariffs. The Bank of England expects 0.25% growth in the second quarter of 2025. Following the May data, it is stated that the June data should at least remain stable. Otherwise, a quarterly contraction may occur. Raj Badiani, Director of Economics at S&P Global Market Intelligence, said, “The contraction in the second quarter shows that the government’s growth plan has been hampered by external and internal shocks.” **(The last line is a separate paragraph and not directly related to the preceding paragraph.)** **(The last line is a separate paragraph and not directly related to the preceding paragraph.)** **(The last line is a separate paragraph and not directly related to the preceding paragraph.)** **(The last line is a separate paragraph and not directly related to the preceding paragraph.)** Yael Selfin, Chief Economist at KPMG UK, said she expects the economy to remain stagnant in the second quarter, but that household spending could pick up again. “As wage increases continue against inflation, borrowing costs will fall, and a modest increase in consumer spending could be seen in the second half of the year,” she said.
