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United Kingdom: Decline in economy softens in May
GDP reading: GDP declined 0.1% month-on-month in seasonally adjusted terms in May (April: -0.3% mom), contrasting market expectations for an expansion. On a rolling quarterly basis, GDP increased 0.5% in March–May, which was below February–April’s 0.7% expansion.
Drivers: Contractions in manufacturing, mining and construction drove the fall in GDP. In contrast, services activity—which accounts for roughly 80% of total output—ticked up in May from April.
Panelist insight: On the latest data, ING’s James Smith said:
“In truth, the monthly GDP figures, which showed a 0.1% fall in May’s output, almost certainly exaggerate the volatility in underlying activity. The latest weakness follows a very strong first quarter, which was driven in no small part by tariff frontloading and home sales ahead of a Stamp Duty (tax) change in April. We’ve also seen a pattern over recent years where the first quarter has recorded much stronger growth than the rest of the year, despite the data being adjusted for seasonal trends. This shouldn’t be the case now, and we suspect that seasonal adjustment has become much harder post-Covid and the most recent inflation wave. The Bank of England opted to look through the first quarter strength, commenting instead that activity was probably more or less flat. We suspect it’ll reach the same conclusion for the second quarter.”
