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    Economy grows in May, boosting new government

    Chancellor Rachel Reeves and deputy prime minister Angela Rayner during their visit to the Oval Village project, after the Chancellor announced the first steps the new Government will be taking to deliver economic growth on July 8, 2024 in London, England. (Photo by Lucy North - Pool/Getty Images)

    Britain’s economic output grew better-than-expected in May, official data showed Thursday, handing an early boost to the country’s newly-elected Labour government.

    Gross domestic product growth came in at 0.4 per cent in May, which compared with flat GDP in April, the Office for National Statistics said in a statement.

    Analysts’ consensus had been for growth of 0.2 per cent in May.

    “Delivering economic growth is our national mission, and we don’t have a minute to waste,” new chancellor Rachel Reeves said in response to Thursday’s data.

    “A decade of national renewal has begun, and we are just getting started,” added Reeves, who became the country’s first female chancellor of the exchequer on her appointment by new prime minister Keir Starmer.

    His Labour party last week won a resounding victory in general election, ending 14 years of rule by the Conservatives.

    However, the strength of the upturn added to doubts that the Bank of England will begin cutting interest rates on 1 August. Three policymakers this week emphasised the strength of domestic price pressures.

    The chance of a rate cut in three weeks’ time edged below 50 per cent in early trade on the futures markets on Thursday from just above 50 per cent on Wednesday.

    May saw a broad-based increase in economic output, with the services, manufacturing and construction industries all growing and the latter up by 1.9 per cent on the month, driven by house-building.

    The figures represented an early boost for the new Labour administration, which has set itself the aim of achieving the fastest growth among the Group of Seven advanced economies on a sustained basis.

    “The improving economic outlook suggests the government may benefit from the economic recovery being stronger than most forecasters anticipate,” Ashley Webb, an economist with consultancy Capital Economics, said.

    Over the three months to May, the economy expanded by 0.9 per cent, the strongest reading since the three months to January 2022, compared with the consensus forecast for a 0.7 per cent expansion.

    The Bank of England last month said it expected the economy would grow by 0.5 per cent over the second quarter – something that now looks likely to prove too low.

    “These GDP figures may make an August rate cut less likely by providing those rate setters who are concerned about underlying price pressures with sufficient confidence about the UK’s economic recovery to continue putting off loosening policy,” Suren Thiru, economics director at accountancy body ICAEW, said.

    (AFP, Reuters)

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