UK economy shrank unexpectedly in May

The UK economy shrank unexpectedly in May, contracting for the second month in a row.

The economy contracted by 0.1%, the Office for National Statistics (ONS) said, confounding analysts who expected to see slight growth.

The government has made boosting economic growth a key priority and Chancellor Rachel Reeves said the latest figure was “disappointing”.

The fall in economic output was mainly driven by a drop in manufacturing, the ONS said, while retail sales were “very weak”.

Oil and gas extraction was down, while car-making and the “often erratic” pharmaceutical industry were weaker, the ONS said.

The services sector grew overall in May, with legal firms recovering from the impact of changes to stamp duty thresholds the previous month.

Ben Jones, lead economist at the CBI business group, said the weak figure for May “highlights the ongoing pressures facing the UK economy, with manufacturing and retail struggling, alongside a patchy performance across other parts of the services sector”.

Reacting to the figures, Reeves said “while today’s figures are disappointing, I am determined to kickstart economic growth”.

In the first three months of the year, the economy had grown by 0.7%. During this period it had been boosted by exports as manufacturers raced to beat higher US import taxes, and as homebuyers rushed to complete purchases before the expiry of the stamp duty tax break.

Despite the contraction in May, the economy grew 0.5% in the March-to-May period, the ONS said.

The economy shrinking in April and May shows the outlook for growth “remains fragile”, said Hailey Low, associate economist National Institute of Economic and Social Research.

A government U-turn on welfare cuts has eroded the financial buffer it has to cope with economic shocks, she added.

With businesses scaling back hiring intentions after wage and tax rises, and “strained” public finances, prospects for growth “remain muted in the medium term” Ms Low said.

Reeves faces “hard trade-offs” in her Budget in the autumn, “having to raise taxes or cut spending to meet her self imposed rules”, she added.