The UK economy shrank in May as production output fell and the service sector stalled, according to the Office for National Statistics.
But the 0.1% fall in gross domestic product in May was better than the 0.3% decline the City had expected in a month disrupted by an extra bank holiday for the King’s Coronation with economists expecting a bigger hit from the extra day off.
ING Economics said: “We had been expecting a more tangible hit from the King’s Coronation and the extra bank holiday, given last year’s royal events saw temporary declines in activity worth 0.7% of GDP in June and September.”
Production output fell by 0.6% in May after a fall of 0.2% in April, revised up from a fall of 0.3% in the previous publication; this sector was the main contributor to the fall in monthly GDP in May, the ONS said.
The construction sector fell by 0.2% in May following a fall of 0.9% in April, revised down from a fall of 0.6% in the previous publication.
Services output showed no growth in May following growth of 0.3% in April, unrevised from the previous publication.
The EY ITEM Club pointed out that May's extra bank holiday caused a much smaller fall in GDP than two similar instances in 2022.
“But while evidence of greater resilience was encouraging in terms of the near-term outlook for activity, it raises the odds of the Bank of England increasing interest rates again in August,” it added.
EY ITEM Club expects the economy to escape a contraction in the second quarter, and sees decent growth in quarter three.