Economy rebounds with 0.5% GDP growth

Economy rebounds with 0.5% GDP growth

The UK economy returned to growth in May due to a rise in construction, production and services.

Gross domestic product grew 0.5 per cent in the month, confounding economists’ predictions after a contraction of 0.2 per cent the month before, according to the Office for National Statistics.

The figures take GDP over the three months to May to a 0.4 per cent rise, and a 3.5 per cent rise in the year to May.

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Services output grew by 0.4 per cent in May, with a large rise in GP appointments pushing a 2.1 per cent increase in human health and social work activities.

This offset the shrinking of the test and trace and vaccination programmes, which had contributed to a previous drop in GDP.

Production grew 0.9 per cent in the month, driven by a 1.4 per cent rise in manufacturing, and construction grew 1.5 per cent in the month.

Monthly GDP is now 1.7 per cent above its pre-Covid levels, measured in February 2020.

ONS director for economic statistics, Darren Morgan, said growth was seen across all main sectors.

“Health was the biggest driver with many more people seeing GPs, despite test and trace and the vaccination programmes winding down,” he said, adding that road hauliers also had a busy month, while travel agencies fared well with pent up demand for summer holidays.   

“There was widespread growth across manufacturing after several tough months, while construction also fared well with housebuilding and office refurbishment driving growth,” he added.

Chief investment officer at Premier Miton Investors, Neil Birrell, said the figure was a “surprising turn of events.” 

“Given the pressure consumers are under and the strike action that took place, this will give the Bank of England something to think about when considering policy action. 

“Sterling should get a welcome boost and some confidence might be restored in the eyes of international investors given the issues in the UK at present.”

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "While it’s positive to see a small nudge upwards in overall GDP, these figures are hardly shooting the lights out. It will take something strong to fully reverse fears the UK’s heading towards a recession in the coming year.

"Frankly, until there is a clear path out from political turmoil, the energy crisis, cost-of-living squeeze and the UK’s far-reaching productivity problems, it’s hard to see where the economy will find its take-off point."

In addition, Paul Craig, portfolio manager at Quilter Investors, said the figures will not do much to the Bank of England's thinking and it will continue to press ahead with interest rate rises.

Craig said: "While the underlying data for the economy is okay at the moment, these rate rises do have the potential to tip things the wrong way and create a recession. The jobs market may remain strong, but the cost of living squeeze is yet to be truly felt and there are a lot of variables that add their own uncertainty, including who the next occupant of No.10 is.