UK economy: GDP falls 0.1 per cent

The UK's gross domestic product fell by 0.1 per cent, while production output fell 0.6 per cent as the impact of an extra bank holiday meant people were pulled out of the workplace, and despite the Coronation celebrations there was no service sector boost.

Richard Carter, head of fixed interest research at Quilter Cheviot, said the government and the Bank of England were now "scrambling" to bring inflation down.

He said there were signs that the large price rises and increase in interest rates were starting to bite on the economy as growth fell over the month and flatlined over the last quarter.

"The UK economy has done well to avoid a recession to date, but how long this can continue when interest rates are expected to reach six per cent and beyond remains to be seen. Indeed, you just have to look at the data from the Bank of England’s recent stress test on the UK banking system to see that there are skeletons lurking in the closet when it comes to mortgage risk and people rolling onto much higher rates. 

 “Furthermore, while the labour market remains very tight, it is beginning to show signs of weakening and may start to roll over soon, exposing the economy to both a weaker consumer and corporates beginning to struggle. The savings accumulated during the pandemic cannot be relied on for much longer and the effects of inflation and interest rate rises to date will ultimately have sucked a huge amount of money out of the economy."

Coronation boost?

Danni Hewson, head of financial analysis at AJ Bell, said it could have been worse. “Those three lovely, long bank holidays might have been a delight for many of us, but we knew it would come at the expense of economic growth.

“Factories, GP surgeries and schools all shut up shop as the country celebrated the Coronation of King Charles with an extra day off, which delivered a feel-good boost but curtailed sectors from manufacturing to services.

“The fact the contraction came in at just 0.1 per cent demonstrates the resilience of the UK economy which has been battered by inflation, interest rate hikes and strike action.

“But there’s no point looking at the picture through rose-tinted glasses because it’s crystal clear that resilient is a far cry from robust."

“Over the three months to the end of May the country’s economic engine stalled, held fast by the sticky embrace of an ongoing cost of living crisis.

“If the only way to stamp out inflation is to force a recession the economy seems ready to capitulate.

“People are growing increasingly weary of inflation, and the additional pressure of increased mortgage payments will push some families right to the brink.

“Industrial action, brought about because workers are seeing their lifestyles eroded day by day, is adding to the toxic mix, and whilst May’s economic weakness must be viewed as an anomaly, productivity overall is subdued."