UK Economy Grows by 0.4% in May, Exceeding Expectations
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The UK economy has experienced a significant boost, growing by 0.4% in May, which is double the expected figure. This growth is driven by the continued expansion in the services sector and a rebound in housebuilding.
Economic Data
According to the Office for National Statistics (ONS), the month-on-month rise in the economy follows zero growth in April. The ONS reported that the economy grew by 0.4% in May, exceeding the forecast of 0.2% by economists polled by Reuters. The strong growth in May suggests that the quarterly expansion might exceed the Bank of England’s (BoE) forecasts, potentially complicating its decision on whether to start cutting interest rates in August.
Interest Rates
The BoE has kept interest rates at a 16-year high of 5.25%. Traders in swaps markets are evenly split on the chances of the BoE keeping rates on hold and cutting them at its August meeting. The economic data brings the UK’s annual GDP growth to 1.4%, higher than the 1.2% forecast by economists.
Expert Analysis
Tomász Wieladek, chief European economist at T Rowe Price, stated that the strong growth in services consumption raises the risk that service CPI inflation will remain too strong for the BoE to cut interest rates. Ashley Webb, economist at Capital Economics, noted that the rise in gross domestic product (GDP) in May was the fourth increase in the past five months, supporting the idea that the dual drags on activity from higher interest rates and higher inflation are starting to fade.
Government Response
Chancellor Rachel Reeves hailed the data as a boost to the government’s economic plans. She stated, "This week I have already taken the urgent action necessary to fix the foundations of our economy to rebuild Britain and make every part of Britain better off. A decade of national renewal has begun, and we are just getting started."
GDP Growth
The economy has largely stagnated over the past two years, reflecting the hit from the cost of living crisis. However, the economy has bounced back from last year’s technical recession. Strong growth of 0.7% in the first quarter was the fastest expansion in the G7 group of advanced economies.
Sector Performance
The services sector drove growth in May, growing by 0.3% and registering the fastest growth over three months since December 2021. Manufacturing production was up 0.4% in May, and construction rebounded 1.9% following a sharp contraction in April, when wet weather hit activity.
Weather Impact
Rainfall in April was 155% of the long-term average for the month, while May was the warmest since records began in 1884, according to the Met Office.
Conclusion
The UK economy’s growth in May is a welcome boost, exceeding expectations and suggesting that the quarterly expansion might exceed the BoE’s forecasts. The strong growth in services consumption raises the risk that service CPI inflation will remain too strong for the BoE to cut interest rates. The government has hailed the data as a boost to its economic plans, and experts believe that the improving economic outlook suggests the government may benefit from the economic recovery being stronger than most forecasters anticipate.
FAQs
Q: What was the growth rate of the UK economy in May?
A: The UK economy grew by 0.4% in May, exceeding the expected figure of 0.2%.
Q: What drove the growth in the economy in May?
A: The growth was driven by the continued expansion in the services sector and a rebound in housebuilding.
Q: What is the current interest rate in the UK?
A: The current interest rate in the UK is 5.25%, a 16-year high.
Q: Are interest rates likely to be cut in August?
A: Traders in swaps markets are evenly split on the chances of the BoE keeping rates on hold and cutting them at its August meeting.
Q: What is the current annual GDP growth rate in the UK?
A: The current annual GDP growth rate in the UK is 1.4%, higher than the 1.2% forecast by economists.
Q: What is the impact of weather on the economy?
A: Rainfall in April was 155% of the long-term average for the month, while May was the warmest since records began in 1884, according to the Met Office.
Author: www.ft.com
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