Real gross domestic product (GDP) in the United Kingdom contracted by 0.1% in May 2023, according to the latest figures from the Office for National Statistics (ONS).
This follows a modest growth of 0.2% in April 2023, confirming the previous month’s forecast of a contraction but less severe than the projected 0.3%.
The new data also reveals stagnation in the broader economy. ONS figures indicate no growth in the three-month period leading up to May 2023.
The ONS report highlighted the production output, which declined by 0.6% in May, marking a sharper fall than the 0.2% recorded in April. The earlier figure was adjusted upwards from an initial report showing a fall of 0.3%. The faltering production sector was identified as the chief contributor to May’s GDP decrease.
The construction sector also experienced a downturn, declining 0.2% in May following a larger contraction of 0.9% in April. Notably, the April figure was revised downwards from an initially reported fall of 0.6%, indicating a more troubled period for the sector than initially assessed.
In the service sector, output remained stagnant in May 2023 after registering a growth of 0.3% in April, with the previous figure remaining unchanged.
However, consumer-facing services, a key component of the sector, saw a decrease in output of 0.2% in May, despite growing 1.1% in the preceding month – a figure adjusted upwards from an initial 1.0% growth.
Reaction
Sekar Indran, senior portfolio manager – equities at Titan Asset Management:Â
“The UK economy contracted -0.1% MoM, a slower pace than expectations of -0.3%. The data will provide Andrew Bailey with some comfort that he made the right decision to hike rates by a surprise 0.5% last BoE meeting with an August hike firmly on the cards. For the time being, the UK consumer is proving to be more durable than many anticipated given excess pandemic savings and the labour market remains resilient.”
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial:Â
“With the central bank seemingly set on inducing a recession, these figures were expected but there’s worse to come. The Governor has stated that a million homeowners will be paying £500 a month more on their mortgage by 2025 and these people have been largely unaffected by the rate increases so far as they are on fixed rates.
“The Bank of England’s policy is frankly bemusing and, if it continues to hike rates, GDP data for the second half of 2023 will be bleak.”
Wes Wilkes, CEO at the Newcastle-under-Lyme-based wealth manager, Net-Worth Ntwrk:Â
“Given the May GDP data released today, we now see the difficult predicament being faced by the Bank of England. This contraction could signal to the Bank of England that its monetary policy is working and that it can stop the hikes, or perhaps not hike as aggressively.
“But we should be careful what we wish for, as May’s data could signal a contractionary trend forming, which may signal recession on the horizon. For now, the slowing of growth could mean rates perhaps don’t go as high after all, which could boost market sentiment. Bad news, in these curious times, can sometimes be good news.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“Stagflation has well and truly arrived. No growth across any sector of the economy, including the usually strong services sector, which flatlined in May. Construction fared even worse, with April’s contraction of 0.6% being revised down to 0.9%. The only positive to be taken from these figures, if you can call it that, is that the economic medicine appears to be working. This might mean there is less pressure to raise interest rates, though the jury is still out on that one.”
