UK Economic Growth Falters as GDP Contracts 1% in May 2025

Britain’s economy experienced an unexpected contraction in May 2025, highlighting the mounting challenges facing Chancellor Rachel Reeves amidst growing speculation of impending tax rises in the autumn budget.

Official data from the Office for National Statistics revealed the economy shrank by 0.1 per cent, marking the second consecutive month of declining output following April’s 0.3 per cent decrease. The figures fell short of analysts’ expectations, who had forecast a modest growth of 0.1 per cent.

The downturn was primarily driven by weakness in the industrial sector, with production businesses recording a 0.9 per cent decline. The construction sector also struggled, posting a 0.6 per cent fall. The services sector, which accounts for more than two-thirds of UK GDP, managed a marginal 0.1 per cent increase.

Despite the monthly contraction, the three months to May showed overall growth of 0.5 per cent, largely attributed to businesses front-loading spending to avoid President Trump’s threatened tariffs. The ONS revised March’s growth estimate upwards to 0.4 per cent from the previously reported 0.2 per cent.

The economic slowdown has significant implications for public finances, with the Chancellor facing estimated fiscal rule breaches of £20 billion. The government’s recent £6.25 billion welfare system reform reversal has intensified concerns about potential tax increases or spending cuts in the upcoming autumn budget.

Market reaction saw the pound sterling decline 0.29 per cent against the dollar to $1.35, while marginally falling 0.03 per cent against the euro to €1.15. Economists now anticipate the Bank of England may implement two more interest rate cuts this year, potentially lowering rates to 3.75 per cent to stimulate economic growth.