Britain’s Economy Contracts for Second Consecutive Month

By Andy Bruce and William Schomberg

(Reuters) – Britain’s economy unexpectedly contracted for a second consecutive month in May, raising concerns for finance minister Rachel Reeves amid a volatile global landscape, according to official data released on Friday.

Gross domestic product (GDP) fell by 0.1% after a 0.3% decline in April, as reported by the Office for National Statistics.

Economists surveyed by Reuters largely anticipated a 0.1% increase in GDP from April. Although the services sector showed slight growth, declines in industrial production and construction adversely affected overall output.

This reading heightens concerns about the economy’s growth prospects for the second quarter of 2025, following a strong start earlier in the year. It has also increased expectations that the Bank of England will reduce interest rates next month.

Suren Thiru, economics director at ICAEW, noted, “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.”

Prime Minister Keir Starmer’s Labour government has faced challenges in fostering meaningful economic growth during its initial year in power.

Economists suggest that tax increases may be necessary in Reeves’ upcoming budget, a move she had sought to avoid.

“While today’s figures are disappointing, I am determined to kickstart economic growth and deliver on that promise,” Reeves commented about the recent data.

Britain’s economy experienced significant growth in the first quarter of 2025, outpacing other G7 nations. In May, the Bank of England adjusted its full-year growth forecast to 1%.

However, much of this growth may be attributed to the expiration of a home purchase tax break in April, which spurred sector activity before the deadline, and manufacturers’ efforts to circumvent increasing U.S. import tariffs.

The Bank of England estimates that the economy grew by approximately 0.25% in the second quarter of 2025. To sustain growth for the quarter, the Office for National Statistics stated that June’s monthly data must reflect at least a flat condition, barring any revisions to the preceding months.

A month-on-month contraction of 0.4% or steeper for June could indicate a broader quarterly contraction.

Raj Badiani, economics director at S&P Global Market Intelligence, stated, “The second straight decline in monthly real GDP in May will increase concerns that the government’s growth plan has been derailed by external and domestic shocks.”