UK economy dips less than expected after strikes and coronation

By Andy Bruce and William Schomberg

LONDON (Reuters) -Britain’s economy contracted by less than expected in May despite the impact of strikes and an extra bank holiday to mark the coronation of King Charles, putting it on track to avoid a decline for the second quarter as a whole.

Economic output fell 0.1% in May from April, the Office for National Statistics (ONS) said, following growth of 0.2% in the previous month.

A Reuters poll of economists had pointed to a contraction of 0.3%.

All sectors of the economy contracted in May with the exception of services, which showed no growth. The pound rose modestly against the dollar on the back of the data.

Business groups said the big picture of a tepid economy remained, albeit one with stubborn inflationary pressures that mean the Bank of England is likely to raise interest rates further.

Britain’s economic recovery from the COVID-19 pandemic has lagged most of its peers among major advanced economies, with only recession-hit Germany having fared as badly as of the first quarter of this year.

“These GDP figures are unlikely to prevent another rate rise in August,” said Suren Thiru, economics director at accountancy body ICAEW.

“However, given the long time lag between rate rises and its effect on the real economy, tightening further risks damaging our growth prospects by overcorrecting for past errors.”

Britain’s finance minister Jeremy Hunt said high inflation continued to hamper the economy and he called for patience in bringing it down.

“Our plan will work, but we must stick to it,” he said.

Some companies in the arts, entertainment and recreation sector said they had benefited from the extra bank holiday, as well as hotels and restaurants, the ONS said.

But there were signs that strikes in the health, rail and education sectors had dragged on output.

The ONS said anything better than a 0.1% drop in economic output for June would put the economy on track to avoid a contraction for the second quarter as a whole.

Britain’s economy often shows some rebound in subsequent months when output is temporarily dented by extra bank holidays.

Source link