Rachel Reeves says GDP figures ‘are disappointing’ after UK economy shrinks for second month in a row – business live | Breaking News & Latest UK Updates

Rachel Reeves says GDP figures ‘are disappointing’ after UK economy shrinks for second month in a row – business live — Chancellor Rachel Reeves has described the latest GDP figures as “disappointing”. Following this morning’s news thatthe UK economy contracted by 0.1% ...

Chancellor Rachel Reeves has described the latest GDP figures as “disappointing”.

Following this morning’s news thatthe UK economy contracted by 0.1% in May,Reevespoints to the government’s efforts to support households financially:

“Getting more money in people’s pockets is my number one mission. While today’s figures are disappointing, I am determined to kickstart economic growth and deliver on that promise.

“The choices we have made in our first year in government have seen us extend the £3 bus fare cap, fund Free School Meals for over half a million more children, press ahead with plans to deliver free breakfast clubs for every child in the country and increase the National Minimum and National Living Wage, giving a pay rise to 3 million workers.

“There’s more to do, that’s why in the Spending Review we boosted investment and jobs, through better city region transport and record funding for affordable homes, as well as backing major projects like Sizewell C.”

[Reminder: economists had expected the UK economy returned to growth in May, butGDP has actually fallen by 0.1% during the month, pulled down by a fall in manufacturing output].

Britain’s computing industry has a good May.

The largest positive contribution to services growth during the month came from the information and communication subsector, which grew by 2.0%.

That included a 3.0% increase in the computer programming, consultancy and related activities industry.

This chart shows how the UK production sector was the main contributor to the 0.1% fall in GDP in May 2025.

Reminder: production output fell by 0.9% in May, while construction output dropped by 0.6% and services sector output rose 0.1%.

It’s possible, but not likely, that the UK economy will have shrunk in the April-June quarter, say Investec.

Following this data [the 0.1% drop in GDP in May], a contraction in activity in Q2 as a whole is possible, but this is still not our base case.

Thanks to carry-over effects of a strong end to Q1, and assuming no revisions to the back data, activity in June could have contracted by 0.2% on the month and the economy would still have grown in Q2, albeit by only the slimmest of margins.

From there we expect GDP to continue to expand, although we do not imagine the pace of growth will be breaking any records anytime soon.

[We’ll get June’s GDP data, and the full report for Q2, in a month’s time].

If you’re just tuning in…. Britain’s economy unexpectedly shrank in May, fuelled by sharp declines in manufacturing and construction, in a blow for chancellorRachel Reeves.

TheOffice for National Statisticssaid gross domestic product fell by 0.1% in May, missing City predictions of a 0.1% monthly expansion.

It was the second month of contraction in a row aftera 0.3% drop in Aprilas businesses cut jobs and cancelled investment plans in response to higher taxes and uncertainty created by Donald Trump’s tariff war.

The latest figures show declines in construction, oil and gas extraction, car manufacturing and the production of pharmaceuticals outweighed a return to growth in Britain’s dominant service sector.

Manufacturing output had risen sharply in the first three months of the year as businesses rushed to beat the introduction of Trump’s 2 April “liberation day” tariff announcement, fuelling an increase in exports. While a slowdown was likely after US importers filled their inventories, manufacturers have been hit by uncertainty.

More here:

There’s a danger that the UK slides down the G7 growth league table, warnsBarretKupelian, chief economist atPwC, following the fall in GDP in May:

“A single month’s GDP is like a lone brushstroke; it tells you little. However, when paired together with other months, it gives us an indication of the direction of travel for the economy. And that story is beginning to turn sour for the UK.

“Today’s data release showed us that the growth momentum recorded earlier in the year is slowing down rapidly as the economy contracted on a monthly basis for a second time in a row in May (see chart).

“Despite the early May fanfare over the US-UK economic prosperity deal (EPD), output in the car and pharmaceutical industries contracted. Tariff uncertainty still hangs over industry like a stubborn fog. The services sector grew marginally, offsetting some of the negative momentum in the rest of the economy.

“Our main scenario projection before today’s data release showed the UK middle-of-the-pack when ranked amongst the G7 on economic growth for this year, growing at about 1%. Now, with growth momentum rapidly slowing, there’s a genuine risk we slip down the rankings.”

May’s weaker-than-expected growth reporthas not spooked the City.

Instead, theFTSE100blue-chip index has risen slightly, hitting a new intraday high for the second day running.

TheFTSE100index gained almost 9 points, or 0.1%, to 8984 points, putting the 9,000 points mark in reach for the first time.

Energy giantBP(2.3%) is leading the risers after it reported a rise in oil, gas & low carbon energy production in the last quarter.

Analysts at Dutch bank ING say there are “growing concerns” about the UK economy, not helped by the drop in GDP in May.

But…. they also point out that the UK GDP figures have been incredibly volatile this year, and suggest that “May’s decline looks more like noise than signal”.

[Actually, there’s a broader debate on the wisdom of calculating GDP data each month, rather than wrapping the data up each quarter as most other countries do].

James Smith,ING’sdeveloped markets economist, points out that May’s weakness follows a very strong first quarter, when the UK economy grew by 0.7% thanks to tariff frontloading and stronger home sales ahead of the stamp duty change in April.

He adds:

Though it would be wrong to conclude from the GDP data alone that the economy is coming under greater pressure, there are genuine questions emanating from the jobs market and whether it is beginning to fall apart more quickly.

Remember that in May, payrolled employment fell at the sharpest rate outside of the pandemic (the data has been produced since 2014). This data may well be revised up, as is fairly common, but if that doesn’t happen – and indeed if June’s data is as bad as May’s – then it would raise difficult questions for both the Bank of England and the Treasury.

Shadow chancellorMelStridehas claimed the UK is facing a ‘ticking tax timebomb’, not helped by the economy shrinking in May:

“Thanks to Labour’s reckless choices the economy actually shrank in May.

“This will pile even further pressure for tax rises in the autumn.

“Labour’s costly U-turns, on winter fuel and welfare, have created a ticking tax timebomb.”

Thanks to Labour's reckless choices the economy actually shrank in May. This will pile on even further pressure for tax rises in the Autumn.Under Labour - taxes hiked, inflation & unemployment up & growth stagnant. We can’t afford Labour.https://t.co/dllo3Zf56i

The drop in GDP in May, and April, will put more pressure on the Bank of England to cut interest rates at its next meeting, in early August.

Richard Flax, chief investment officer at wealth managerMoneyfarm, says:

With inflation continuing to ease and economic momentum faltering, the case for an interest rate cut has strengthened. Markets are now likely to price in a higher probability of a 25 basis point cut, potentially bringing the base rate down from 4.25% to 4.00%.

The BoE may view this contraction as a signal that tight monetary conditions are weighing too heavily on growth.

Deutsche Bank’s Sanjay Rajaagrees, predicting a cut in August, and more later this year:

For now, weakness in GDP will cement some on the MPC’s fears that demand is loosening faster than expected. An August rate cut looks almost certain. And we expect more to come in Q4-25.

Suren Thiru,ICAEWeconomics director, says a rate cut next month is ‘inevitable’:

“The UK’s growth trajectory in the near term is likely to tilt downwards as any uplift from higher consumer and government spending is hampered by escalating business caution, amid fears of further tax rises in this Autumn’s Budget.

“The lack of momentum in the UK economy indicated by these sluggish figures means that an August interest rate cut currently looks inevitable, despite the recent spike in inflation.”

Sanjay Raja, Deutsche Bank’s chief UK economist, has some encouraging words for Rachel Reeves.

He told clients this morning thatDeutscheBankdoes not think the UK economy is at risk of faltering.

He points out that there are encouraging economic signs:

The latest PMI data point to a rebounding economy. Household sentiment is on the rise (albeit gradually). And business sentiment has pushed above its long-run average (see the Lloyds Business Barometer and Deloitte CFO survey). Credit conditions… look steady and healthy.

And some tentative indicators are already pointing to a stabilisation in the labour market (HR1 redundancy notifications, vacancies, and DMP).

Fiscal capex should be pushing through the economy too. And some productivity growth via trade deals with India and the EU (agri-food deal) should pose some upside to supply growth over the next several quarters.

Rajaadds that it’s “easy to be pessimistic on the UK economy” after two disappointing monthly falls in GDP, saying:

Certainly, there are big questions on manufacturing – which has been in the doldrums for some time now. Some defence spending should help. But we will need a global manufacturing recovery to kickstart the sector. This is the big unknown for the UK economy.

Big picture, though, it’s also worth taking a big step back: if the economy does indeed slow to 0.1% q/q in Q2-25, this would still mean that the UK economy had grown by 0.8% in the first half of the year, which would still be pretty healthy.