The British GDP grew more than expected in May, paving the way for Labour’s new economic reforms.
The UK economy expanded more than expected in May, figures published by the Office of National Statistics showed on Thursday. The economic growth will gift additional thrust to the new Labour government, leading the country since last week.
The British Gross Domestic Product expanded by 0.4% in May, more than the 0.2% forecast by Reuters-polled economists. Growth was mainly driven by an expansion in the services sector, the UK’s largest GDP driver, at 0.3%. Production and construction also grew at 0.2% and 1.9% respectively.
May’s figure points to a rebound of the British economy after a slight recession in late 2023. GDP grew more than expected in the first quarter of 2024 and expanded every month of Q2 except for April. The Bank of England expects a 0.5% economic growth in the second quarter, though it will most likely be higher.
Ashley Webb, UK economist at Capital Economics, said the recent GDP trend “supports the idea that the dual drags on activity from higher interest rates and higher inflation are starting to fade.”
Annual inflation in the United Kingdom fell to the 2% target in May, but the BoE signaled caution before cutting interest rates. The cost of the pound is currently at its 23-year high at 5.25%, but markets are uncertain whether the Bank of England will slash rates already in August.
May’s GDP figures may make an August rate cut less likely by providing those rate-setters who are concerned about underlying price pressures with sufficient confidence about the UK’s economic recovery to continue putting off loosening policy,” Suren Thiru, economics director at accountancy body ICAEW, said.
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A gift for Keir Starmer
The better-than-expected GDP growth will serve as firepower for the newly entrusted Labour government led by Sir Minister Keir Starmer.
Starmer took over as Prime Minister on July 4th with a business-friendly, growth-driven agenda. Six days into office the new government announced a £7.3 billion sovereign fund to funnel private investments into economic growth.
That’s a 90-degree turn from the previous Conservative governments which enacted severe austerity measures since the 2008 financial crisis. The Brexit referendum, the COVID pandemic, and the Ukraine war brought the British economy to its knees.
“With the public finances stretched, ministers should follow its flurry of recent pro-growth announcements by prioritizing high-impact, low-cost measures which taken together could help unlock much-needed private investment,” Muniya Barua, deputy chief executive at industry campaign group BusinessLDN, told CNBC.
The recent GDP figures will serve as a testament to the new Labour agenda. Combined with a supermajority in the House of Commons, Starmer will have no issues passing economic reforms in the short and medium term.
