- Economy Contracts in May: Negative growth of 0.1% due to additional public holiday
- Stagnant Quarterly GDP: Yo-yo pattern continues, no growth in the last three months
- Inflation Exacerbates Cost of Living Crisis: Rising interest rates pose challenges for households
The latest data, according to Chancellor Jeremy Hunt, demonstrates why the nation must eliminate its inflation problem, as the prospect of rising interest rates exacerbates the cost of living crisis for households.
According to official data, the economy contracted in May due to the additional public holiday for the coronation of the King.
The Office for National Statistics (ONS) reported negative growth of 0.1% during the month, which was better than what economists had predicted but continued the yo-yo pattern observed throughout the last year, which has resulted in a stagnant quarterly gross domestic product.
The ONS reported that even though the extended bank holiday on May 8 shut down most normal business activity, the hospitality industry failed to capitalize.
No significant economic sector was expanding.
Services, which account for 80% of British output, remained stagnant.
Director of economic statistics at the ONS, Darren Morgan, commented on the performance, stating, “GDP decreased slightly as manufacturing, energy generation, and construction all declined, and some industries were affected by one fewer working day than usual.”
“Despite the coronation bank holiday, pubs and bars saw a decline in sales following a robust April. Employment agencies also experienced another month of decline.
However, services as a whole were flat, with health services recovering, with less impact from strikes than the previous month, and IT having a robust month as well.
“Over the course of the last three months, the economy showed no growth.”
Inflation is ‘a burden’ on output.
The economy is once again at risk of recession as the Bank of England exerts greater pressure on persistent inflation.
The government has stated that it would embrace this possibility if it meant that the issue could be brought under control.
Aspects of the energy-driven cost of living crisis have proven to be more protracted than anticipated, and the Bank of England has also cited so-called secondary effects as contributing to the sluggish rate of inflation.
These include a record-setting wage growth rate and a suggestion that companies are rebuilding profits by charging excessive prices.
On account of these effects, rising interest rate expectations have pushed two-year fixed mortgage rates to 15-year highs this week.
The Bank’s most recent analysis of the health of the financial system revealed that millions were at risk of paying an additional £500 per month on their mortgage by the end of 2026, with just under one million confronting the possibility of bills exceeding this amount.
The financial markets anticipate that the Bank of England will raise interest rates by a second 0.5% early next month, despite economists’ predictions that June inflation data will show a decline in the consumer price index to 8% from 8.7%.
Chancellor Jeremy Hunt commented on the most recent growth data, stating, “While an additional bank holiday had an impact on growth in May, high inflation remains a drag anchor on economic growth.”
The most effective method for reviving economic growth and relieving family pressure is to reduce inflation as soon as possible. Our strategy will succeed, but we must adhere to it.”
Rachel Reeves, his Labour shadow, responded, “This Conservative government appears intent to lead us down a path of low growth and economic insecurity.
Given the hard work and talent of the British people, there is no reason why they shouldn’t be expanding our economy.
“Instead, growth is declining once more, families are worse off, and the impact of the Tory mortgage bombshell is widespread.
“Labour will restore financial and economic security and stimulate economic growth so that Britain can seize the future opportunities it deserves.”
