UK Economic Growth in May 2024

The UK economy emerged from a shallow recession in the first quarter of the year, then stabilised in April.

The country’s dominant services sector showed continued growth of 0.3% in May, as output in both production and construction rebounded from losses, rising 0.2% and 1.9% respectively.

The pound rose 0.14% against the US dollar to $1.2863 by 8:30 a.m. in London – the highest level for the British currency since March 8, 2024, according to LSEG data.

The newly elected Labour Party will welcome a broad-based recovery, as Prime Minister Keir Starmer begins his first week in office.

Last week, Goldman Sachs raised its growth forecast for the UK following the landslide victory of the left-wing Labour Party in the country’s general election. The party campaigned on a platform of boosting economic growth, housing and planning.

The party’s large parliamentary majority and pro-business messaging have led analysts to describe the government as generally pro-British.

In a note, Ashley Webb, UK economist at Capital Economics, stressed the recent trend of UK GDP increases in recent months – with the exception of the lack of growth in April – “supporting the idea that the dual pressures on activity from higher interest rates and higher inflation are beginning to fade.”

The pace of price increases in the UK has slowed from a 41-year high of 11.1% in October 2022, to the Bank of England’s 2% target in May this year. The performance has raised expectations of a rate cut by the Bank of England.

However, the Bank of England continued to strike a dovish tone at its June meeting even as its counterparts at the European Central Bank began their own path of rate cuts, warning that leading indicators of persistent UK inflation “remain elevated.” Markets remain roughly evenly divided on the likelihood of a rate cut at its August meeting.

The new government will now have to build on the momentum behind the latest economic growth figures, said Munya Barua, deputy chief executive of industry campaign group BusinessLDN, in emailed comments.

“With public finances under pressure, ministers need to follow the recent wave of pro-growth announcements by prioritising high-impact, low-cost measures that together can help unlock much-needed private investment,” Barua said, pointing to reforming the apprenticeship system and scrapping the stamp duty on equity transactions.

New finance minister Rachel Reeves said last week that Labour would impose mandatory housing targets, lift a ban on new onshore wind farms in England and reform planning rules. On Wednesday, she announced the launch of a £7.3 billion ($9.4 billion) national wealth fund aimed at attracting private sector investment in UK infrastructure projects.

The business community is now waiting for Labor’s first financial statement, which is not expected until mid-September, said Lindsay James, investment strategist at Quilter Investors, in a note.

“This would make tax and spending plans more clear,” James said. “This would allow businesses to better plan for the future, which in turn could stimulate their willingness to invest.”

“However, this will take some time to materialise, and until there is a better understanding of what is coming, we are unlikely to see any meaningful acceleration in GDP growth,” she added.