The UK economy shrinks in May, registering a surprise contraction of 0.1%, according to the Office for National Statistics (ONS). This follows a 0.3% contraction in April and marks the second consecutive monthly decline. Analysts had expected modest growth, but weaker-than-anticipated performance in manufacturing and retail led to the drop.
Chancellor Rachel Reeves acknowledged the disappointment but remained optimistic. She stated that her top priority is “getting more money in people’s pockets” and reaffirmed her commitment to driving growth. However, the unexpected data adds pressure on the government, which has positioned economic revival as a core mission.
While the UK led G7 growth in Q1 with 0.7% GDP expansion—boosted by exports and housing sales—this momentum has clearly faded. Many experts believe that strong first-quarter performance front-loaded growth due to fears of rising U.S. tariffs and the end of the stamp duty holiday. As a result, second-quarter output is now projected to come in at just 0.1% to 0.2%.
Despite avoiding a technical recession, the UK’s economic health remains fragile. The National Institute of Economic and Social Research’s Hailey Low warned that “growth remains fragile,” noting that two straight months of contraction signal underlying weakness. She also pointed to reduced fiscal flexibility, as recent policy U-turns have diminished the government’s ability to absorb future shocks.
Critics were quick to respond. Conservative shadow chancellor Mel Stride blamed Labour’s early policy decisions, stating that May’s contraction was the result of “reckless choices.” He also warned of a looming “tax timebomb” due to reversed cuts to fuel support and welfare. Liberal Democrat Treasury spokesperson Daisy Cooper added that business owners and workers are facing storm clouds as a result of repeated government missteps.
Still, there are reasons for cautious optimism. According to the ONS, business confidence and manufacturing sentiment showed improvement heading into June. Some analysts now expect a Bank of England rate cut in August, which could provide relief and help stimulate growth in the second half of the year.
Outside London, businesses remain wary but resilient. Mick Crosthwaite, CEO of veterinary imaging firm Hallmarq, acknowledged that the environment is “tough” with high inflation and interest rates. Nonetheless, he noted that export-led firms like his, which operate in 26 countries, are still managing to grow. His experience highlights how global exposure can shield firms from domestic volatility.
May’s GDP figures reveal that production was the main drag. Oil and gas output declined, car manufacturing slowed, and the pharmaceutical sector—typically erratic—underperformed. On the positive side, legal and professional services bounced back, recovering from stamp duty-related disruptions in April. But construction and manufacturing declines ultimately outweighed gains in services.
Despite the negative monthly result, GDP rose 0.5% from March to May compared with the previous three-month period. This reflects stronger performance earlier in the year, though the pace is clearly slowing.
Meanwhile, fiscal policy challenges persist. Investment strategist Lindsay James described the latest Office for Budget Responsibility (OBR) report on fiscal risks as “sobering.” The OBR noted that the UK’s public finances are in a “vulnerable position,” worsened by reversals on tax hikes and spending cuts. With debt still rising, the chancellor’s room to maneuver is narrowing ahead of the autumn budget.
As the summer progresses, all eyes now turn to next month’s quarterly GDP report. That figure will provide a clearer picture of whether the UK economy is slowing down or simply facing temporary headwinds. For now, though, the fact remains: the UK economy shrinks in May, adding political and economic pressure at a critical time for the new government.
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