The UK economy grew by 0.4% in May, twice the forecasted rate, driven by strong performances in retail and construction, according to the Office for National Statistics (ONS). This growth marked a rebound from zero growth in April, which had been affected by wet weather.
Construction and Retail Lead the Growth
Construction saw a 1.9% increase, the fastest in nearly a year, fueled by housebuilding and infrastructure projects. Retailers and wholesalers also experienced a bounce back, recovering from a weak April.
Services Sector Contributes
The services sector, which dominates the UK economy, grew by 0.3% in May, contributing significantly to the overall expansion.
Interest Rate Decision on a “Knife-Edge”
The unexpected growth has complicated the decision on whether the Bank of England will cut interest rates from their current 16-year high of 5.25% at its August 1 meeting. Strong economic growth could fuel inflationary pressures, making policymakers hesitant to lower rates despite inflation hitting the target of 2%.
Chancellor and Business Responses
Chancellor Rachel Reeves reiterated that economic growth is the government’s “national mission,” announcing measures such as housebuilding targets and reforms to planning restrictions. Meanwhile, business owners like Carrie-Anne Moore of Broken Bonds in Birmingham reported booming sales, while others, like Mark Preston of Ideal Skateboard, faced challenges due to wet weather affecting customer demand.
Looking Ahead
The recent figures suggest the UK economy is bouncing back, with some experts predicting the Bank of England will wait until September to reduce interest rates. However, policymakers are carefully weighing the potential risks of inflationary pressures from the stronger-than-expected growth.