ONS data

UK economy grows at faster rate than forecast

chart and business finance
The economic recovery is gathering momentum

The UK economy grew by 0.4% in May, faster than expected, to give the new Labour government encouragement that momentum will be maintained throughout the year.

All sectors showed expansion but this could persuade the Bank of England to hold off cutting rates next month.

Huw Pill, the chief economist at the Bank of England said the UK economy is still is suffering from “uncomfortable strength” in wage growth and service sector inflation.

However, he admitted that it was still a question of “when not if” the Bank would cut interest rates this year.

Liz McKeown, of the Office for National Statistics, said many retailers and wholesalers had a good month in May.

“Construction grew at its fastest rate in almost a year after recent weakness, with house building and infrastructure projects boosting the industry,” she added.

Chancellor Rachel Reeves, said:  “Delivering economic growth is our national mission, and we don’t have a minute to waste.

“That is why this week I have already taken the urgent action necessary to fix the foundations of our economy to rebuild Britain and make every part of Britain better off. A decade of national renewal has begun, and we are just getting started.” 

David Bharier, head of research at the British Chambers of Commerce, said: “This is further evidence that the economic shocks of the last five years are winding down as businesses get back onto a growth footing.”

Kevin Brown, savings specialist at Scottish Friendly, said: “A rise in the GDP figures for May is a welcome surprise at an uncertain moment for the economy.

“However, stronger than anticipated economic growth will give the Bank of England pause for thought on where next for rates.

“Although inflation is more or less back at target, GDP growth will signal to the bank that the economy is tolerating higher rates.

“This therefore diminishes the impetus to begin making cuts and won’t be what mortgage holders want to hear. This suggests that the timing of rate cuts could beat a further retreat from here, despite August expectations of a cut.”

The new Labour government has announced a number of measures this week aimed at improving growth.

Chancellor Rachel Reeves has said housebuilding targets will be reintroduced, planning restrictions will be overhauled and there will be an end to the effective ban on onshore wind farms in England.

A new National Wealth Fund has also been announced to attract investment in infrastructure and green industry.

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