UK Economy Expanded 0.4% in May, Driven by Construction Industry Revival

The UK economy experienced a notable expansion of 0.4% in May, doubling the anticipated growth rate of 0.2%. This positive development follows a stagnant month in April and is largely attributed to a significant revival in the construction and services sectors.

Construction Industry Leads the Way

The construction industry played a pivotal role in this economic upturn, recording its fastest growth in almost a year. Housebuilding and infrastructure projects were the primary drivers behind this surge, reflecting a robust recovery in the sector. The Office for National Statistics (ONS) highlighted that construction activity jumped by 1.9% in May, a substantial increase that underscores the sector’s resilience and capacity for rapid recovery.

Services Sector Contribution

In addition to construction, the services sector also contributed to the GDP growth, expanding by 0.3% in May. This sector, which includes businesses such as shops, bars, and restaurants, showed a strong performance, bouncing back from a weaker April. Retailers and wholesalers, in particular, had a good month, benefiting from improved consumer spending and favourable weather conditions.

Government’s Economic Strategy

The Labour government is banking on this strong economic expansion to fund its ambitious policy agenda. Chancellor Rachel Reeves emphasized the importance of this growth, stating, “This week I have already taken the urgent action necessary to fix the foundations of our economy to rebuild Britain and make every part of Britain better off. A decade of national renewal has begun, and we are just getting started.”

Implications for Interest Rates

The unexpected economic growth in May has implications for the Bank of England’s monetary policy. The stronger-than-expected GDP figures suggest that the quarterly expansion might exceed the Bank’s forecasts, potentially complicating its decision on whether to cut interest rates in August. Analysts are now closely watching the Bank’s next move, as the economic data indicates that the dual drags of higher interest rates and inflation are starting to fade.

The UK’s economic performance in May, driven by the construction and services sectors, provides a positive outlook for the future. The construction industry’s rapid growth and the services sector’s resilience are key indicators of a recovering economy. As the Labour government continues to implement its policies, the strong economic foundation laid in May will be crucial in achieving long-term national renewal and prosperity.