The UK economy is expected to have stalled for another month, with some economists forecasting GDP flatlined or declined in May – a hangover from the Iran war that has kept global turbulence simmering. The Office for National Statistics (ONS) will publish May’s gross domestic product figures on Thursday, following April’s slip of 0.1%. That contraction – the first since August last year – came after a sharp pullback from growth of 0.3% in March and 0.4% in February, dragged down by the dominant services industry while construction and manufacturing grew.
Surging fuel and energy costs have been squeezing businesses and households since April, and remained elevated through May, although wholesale prices have eased in recent weeks. The war between the US-Israel alliance and Iran has disrupted global markets, prompting Chancellor Rachel Reeves to state: “It was not a war we wanted or joined, but one that will have an impact at home.”
“UK economy expected flat or down in May as Iran war and fuel costs bite”
Pantheon Macroeconomics predicts another weak performance from services, but a more mixed picture across the wider economy, with subsectors like energy supply boosted by higher oil prices. Its analysts expect no growth in May. Deutsche Bank is more downbeat, forecasting a 0.1% decline. Its chief UK economist, Sanjay Raja, said services activity remained “sluggish” in May, particularly in information, professional and financial services, and real estate.
Yet Raja pointed to bright spots: “Anecdotally, retailers pointed to a combination of promotions and warmer weather boosting demand for items such as outdoor furniture and fans.” Looking ahead, he suggested some sectors could get a boost this month as England has progressed further in the Fifa World Cup, with pubs and bars benefiting from extended opening hours and busier periods.
The ONS data on Thursday will confirm whether the economy has shaken off the drag from the Iran conflict – or whether the slow lane has become a permanent fixture.