UK economy worries: May GDP contracts 0.1% for second straight month; BoE rate cut seen likely amid fiscal strain

Britain’s economy contracted for the second consecutive month in May, dealing a blow to finance minister Rachel Reeves as she navigates a shaky domestic recovery and heightened global uncertainty. Official figures released on Friday showed that gross domestic product (GDP) declined 0.1% in May, following a 0.3% drop in April.The latest reading came as a surprise to economists polled by Reuters, who had expected a 0.1% increase in GDP. While the services sector managed a marginal gain, declines in industrial output and construction dragged overall growth into negative territory, the Office for National Statistics (ONS) said.The data casts doubt on whether the economy expanded in the second quarter of 2025, and has strengthened expectations that the Bank of England (BoE) will cut interest rates next month. “The lack of momentum in the UK economy indicated by these sluggish figures means that an August interest rate cut currently looks inevitable, despite the recent spike in inflation,” said Suren Thiru, economics director at accountancy body ICAEW.Prime Minister Keir Starmer’s Labour government, which took office earlier this year, has yet to deliver a meaningful boost to growth. Economists say finance minister Reeves may now be forced to consider tax hikes in her next budget, despite earlier hopes to avoid them.“While today’s figures are disappointing, I am determined to kickstart economic growth and deliver on that promise,” Reeves said in response to the ONS release.Britain had posted a strong performance in the first quarter of 2025, outpacing other G7 economies. In May, the BoE raised its full-year growth forecast to 1%. However, much of the Q1 surge was attributed to temporary factors — including a rush to close home purchases before the expiry of a tax break in April and accelerated exports to beat rising US tariffs.The BoE estimates second-quarter GDP growth at around 0.25%. To meet that target, the ONS said, June would need to show at least flat monthly growth, assuming no revisions to previous months. A contraction of 0.4% or more in June would result in a quarterly decline.“The second straight decline in monthly real GDP in May will increase concerns that the government’s growth plan has been derailed by external and domestic shocks,” said Raj Badiani, economics director for Europe at S&P Global Market Intelligence, quoted Reuters.