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The UK economy contracted 0.1 per cent in May, despite analysts’ expectations of a small uptick, in a sign of the challenges facing chancellor Rachel Reeves.
The fall in output for the month contrasted with the 0.1 per cent growth forecast by economists polled by Reuters and followed a 0.3 per cent contraction in April according to data published on Friday by the Office for National Statistics.
The pound fell 0.2 per cent against the dollar to $1.35 following the data release.
The Labour government’s pledge to revive growth is central to funding Reeves’ spending plans.
But the Bank of England has warned that underlying growth remains weak, adding that economic activity in the first quarter was boosted by one-off factors, such as changes to stamp duty.
The Bank held interest rates at 4.25 per cent last month, but markets are pricing in a strong chance of a quarter-point cut at its next meeting on August 7.
ONS director of economic statistics Liz McKeown said May’s contraction had been driven by “notable falls in production and construction, only partially offset by growth in services”.
She added that the production decline centred on “oil and gas extraction, car manufacturing and the often-erratic pharmaceutical industry”.
However, growth was revised to 0.4 per cent in March, up from 0.2 per cent of initial estimates, boosting the expansion in the three months to May to 0.5 per cent, compared with the previous three months.
McKeown said this reflected “strength earlier in the year that resulted, in part, from some activity being brought forward to February and March”.
This is a developing story