The UK economy grew marginally in May after strong performance in parts of the services sector helped soften the impact of Iran war and narrowly prevented a contraction.
Fresh figures from the Office for National Statistics (ONS) have revealed the economy grew 0.1 per cent in May, broadly in line with market expectations.
The services sector – which contributes more than 80 per cent of total economic output – grew 0.3 per cent against steep falls in other parts of the economy.
Manufacturing contracted 0.8 per cent and production 0.5 per cent.
“While all three main sectors grew over the three months (to May), the slight growth in GDP in May was driven by services alone, with production and construction both falling back,” Liz McKeown, director of economic statistics at the ONS, said.
She added the activity in services came from computer programming and advertising, while the “often-volatile pharmaceutical industry also performed well.”
Science and tech activity was up 1.8 per cent, heavily driven by a 5.1 per cent expansion in research and development on the strength of medical sciences. The ONS said this industry alone contributed 0.06 percentage points to real GDP growth.
Scott Gardner, investment strategist at JP Morgan Personal Investing, said while the latest update was positive, the “broader picture still points to a fragile economy” as higher energy costs weigh.
“The services sector continues to do most of the heavy lifting, helping to keep the economy steady,” he added.
“With momentum still proving difficult to sustain and the situation in Iran remaining uncertain, this reading highlights the economic challenge facing the next Prime Minister. They will inherit a difficult hand as inflation remains above-target and the Iran conflict continues to dampen growth.”
It follows the economy recording a 0.1 per cent slip in April, which followed a strong first quarter after growth of 0.3 per cent in March and 0.4 per cent in February.
But the outbreak of the conflict in Iran at the end of February helped upend global economies and fanned the flames of inflation after oil prices surged to highs of $120 per barrel.
Chancellor Rachel Reeves has said that it was “not a war we wanted or joined, but one that will have an impact at home”.
Treasury set for reshuffle
The new figures will be some of the last on Reeves’ scorecard before she is set to be shuffled out the Treasury as Andy Burnham enters No.10.
The Chancellor used her Mansion House speech this week as a last-stitch effort to defend her record on growth and the UK’s public finances.
She issued a warning to her successor that “radical governments without credibility have ultimately failed to win the trust necessary to deliver their agenda”.
Energy secretary Ed Miliband was seen as the front-runner to succeed Reeves but briefings from opponents of the former Labour leader have suggested he has fallen down the preference list. Instead, home secretary Shabana Mahmood has been tipped as the top candidate for No.11.
The new Chancellor will inherit a mountain of pressure on the public purse after the OECD forecasted this week that economic growth would languish at 0.9 per cent for the year.
The top independent economics organisation also warned government debt is projected to breach 105.4 per cent of GDP by 2027. This is set to balloon to 200 per cent by 2050 in the “absence of policy changes and considering ageing costs and climate damage”.
Economists recommended a package of reforms that the OECD said, if successfully implemented, would boost GDP by up to four per cent within a decade.
This includes “essential” consolidation of taxes, which it noted were at “historically high levels”.
