UK economy set to stagnate as Iran war and high energy costs hold back growth
The UK economy is expected to remain stagnant for another month as industries remain under pressure and geopolitical tensions hinder growth.
The Office for National Statistics (ONS) will publish gross domestic product (GDP) figures for May on Thursday.
Economists predict that GDP will either remain flat or fall in May, following a 0.1 percent decline in April. This marked a sharp decline from growth of 0.3 percent in March and 0.4 percent in February, the first contraction since last August.
The decline in April was driven by a decline in the dominant services sector, although this offset growth in the construction and manufacturing sectors. Rising fuel and energy costs strained businesses and households throughout April and May, but wholesale prices have declined recently.
Chancellor Rachel Reeves commented on the impact, stating that this was “not a war we wanted or joined, but a war that would have an impact domestically.”
Pantheon Macroeconomics said it was again forecasting a weak performance for the services sector, but a more mixed situation across the economy, with sub-sectors such as energy supply supported by high oil prices.
Analysts expect GDP to show no growth in May.
Deutsche Bank said it expected GDP to decline by 0.1 percent in May, with a more pessimistic outlook for the economy.
Sanjay Raja, the company’s chief UK economist, predicted services activity, including information, professional and financial services and real estate, remained “slow” in May.
But Mr Raja said this was not “all bad news” for the economy, adding: “Retailers have noted that promotions and warm weather have increased demand for products such as outdoor furniture and fans.”
Looking ahead, he also suggested some sectors could gain momentum this month as England make progress in the Fifa World Cup and some pubs and bars benefit from extended opening hours and busy periods.
Speaking to the BBC’s show with Laura Kuenssberg on Sunday in what could be one of her last major on-air interviews as Chancellor, Ms Reeves conceded the public was “impatient for change” when asked why Sir Keir’s ministry had been sacked in the Labor leadership contest.
He said: “I am impatient for change and I certainly understand that people want to see their lives change more quickly and that will be Andy Burnham’s job when he becomes prime minister of our country in just over a week.
“But thanks to the majority we gained, he becomes prime minister.
“I also know that, thanks to the work I have done, Andy will inherit a much stronger economy than the one I inherited from the Conservatives just two years ago.”
