The UK economy contracted again in May, failing to meet expectations of a modest recovery. Data released on Friday showed that the UK economy unexpectedly contracted again in May, unable to overcome the impact of US tariffs and uncertainty in the business environment.
The latest monthly data from the Office for National Statistics showed that the UK’s gross domestic product (GDP) fell by 0.1% month-on-month in May. Analysts polled by Reuters had expected growth of 0.1%. The decline was mainly recorded in industrial production, which fell by 0.9%, and construction, which decreased by 0.6%. These figures will be a blow to Chancellor of the Exchequer Rachel Reeves, who considers the resumption of economic growth and the reduction of the UK budget deficit to be her main goals.
The latest figures follow a 0.3% decline in April, when domestic tax increases were introduced and US President Donald Trump announced tariffs on both trading partners and adversaries. The turmoil surrounding the tariffs sent global markets into a tailspin and caused widespread uncertainty in the business community.
Challenges for UK economy
According to ONS trade data for 2024, the UK faced the introduction of Trump’s 10% “reciprocal tariff” despite having a more or less balanced trade relationship with the US in terms of goods, although it has a large surplus in services. However, the UK has since concluded a trade agreement with the US, becoming the first country to do so, while tense trade negotiations continue with other trading partners, including the European Union, which is still awaiting the signing of a trade agreement with Washington.
Despite the favourable terms of the trade deal with the US, the UK faces domestic economic challenges, and the impressive 0.7% GDP growth in the first quarter is not expected to be repeated in subsequent quarterly reports. The first estimate of GDP for the second quarter is due to be published on August 14. Instead, economists expect economic growth to slow down by the end of the year amid a weakening labour market and ongoing economic uncertainty, while the Bank of England forecasts low growth of 1% in 2025.
