Key Summary
- Britain's economy contracted unexpectedly for a second month in May, with GDP declining by 0.1%.
- Services sector saw slight growth, but declines in industrial output and construction dragged down overall output.
- The government's spending plans depend on economic growth, with chancellor Rachel Reeves calling the figures "disappointing."
Britain's economy contracted unexpectedly for a second month running in May, underlining worries about momentum going into the second half of the year in an increasingly uncertain global environment, official data showed on Friday.
Gross domestic product declined by 0.1 per cent after a 0.3 per cent drop in April, the Office for National Statistics said.
Economists polled by Reuters had mostly forecast that gross domestic product would rise by 0.1 per cent from April's level. While the services sector eked out a sliver of growth, declines in industrial output and construction dragged down overall output.
The reading poses downside risks to expectations that the economy grew in the second quarter of 2025, after a surge early in the year.
Britain's economy expanded rapidly in the first quarter of 2025, outstripping growth in other countries in the Group of Seven advanced economies. In May the Bank of England revised up its full-year growth forecast to 1 per cent.
However, much of the growth in early 2025 was likely to have been linked to the expiry of a tax break for some home purchases in April which boosted the sector before the deadline, and a rush by manufacturers to beat higher US import tariffs.
The BoE has said it thinks the economy grew by about 0.25 per cent in the second quarter of 2025. To achieve any growth for the quarter, the ONS said June's monthly data would need to show at least a flat reading.
Blow to government
The figures add to problems faced by prime minister Keir Starmer and his Labour government as it battles global uncertainty over US tariffs and elevated inflation.
The government's spending plans depend heavily on economic growth, especially after fiscal setbacks caused by its U-turns on welfare cuts and winter fuel payments for millions of pensioners.
Chancellor Rachel Reeves called the figures "disappointing" and said there is "more to do."
To kickstart the economy, Labour has pledged to cut red tape and launched a multi-billion pound investment plan focused on the ailing National Health Service (NHS) and crumbling infrastructure.
Separate ONS data on Friday showed that Britain's exports to the US rose by £0.3 billion in May, following a record drop in April when president Donald Trump's tariffs kicked in.
"Growth is becoming incredibly difficult to achieve for the government," said Lindsay James, investment strategist at Quilter.
"The plans put in place so far are unlikely to move the needle in the absence of improving business and consumer sentiment in an environment of ongoing cost pressures," she added.
ONS director of economic statistics Liz McKeown noted that there were "notable falls in production and construction" that impacted GDP in May.
She said the fall in production was driven by "oil and gas extraction, car manufacturing and the often-erratic pharmaceutical industry."