United Kingdom: Economic activity dips in May
GDP dropped 0.1% month-on-month in seasonally-adjusted terms in May (April: +0.2% mom), a smaller fall than markets were expecting. May’s weakening was due to deteriorations in the consumer-facing services, manufacturing and construction sectors. One fewer working day than normal, as a result of the King’s coronation, weighed on output in the month. The economy is now just 0.2% above its pre-Covid levels.
On a rolling quarterly basis, GDP was flat in March–May (February–April: +0.1% qoq).
Looking ahead, the economy will remain weak due to tight monetary policy and competitive losses due to Brexit.
On the outlook, Berenberg’s Kallum Pickering said:
“We expect the UK to exhibit lacklustre growth until the BoE pauses with its rate hike cycle and most of the lagged effect of monetary tightening has passed through the economy. Even if the BoE tops out, as we expect, at 5.5% in August (with a risk of 5.75% in September), H2 2023 and H1 2024 will remain difficult. Thereafter, more normal supply conditions, as well as a partial BoE reversal, can underpin a return to trend growth during the second half of 2024.”