UK growth resumes in May but energy prices cloud outlook

The UK economy expanded by 0.1% in May, rebounding from a slight contraction in April, according to the Office for National Statistics. The recovery was driven entirely by the services sector, which masked underlying declines in both production and construction.

Over the three months to May, the economy grew by 0.7% compared to the previous quarter. "The economy recorded robust growth in the three months to May, though the pace eased slightly as the latest two months showed a weaker picture," said Liz McKeown, director of economic statistics at the ONS.

Consumer spending provided a timely boost, aided by warmer weather in May. Yael Selfin, chief economist at KPMG, noted that this spending is likely to persist into June and July thanks to the World Cup. However, she cautioned that this services-led strength "may not be enough to offset weakness across other parts of the economy".

The broader outlook is heavily clouded by escalating geopolitical risks. April's contraction was already linked to the initial impact of the US-Israel war with Iran on businesses. Since hostilities resumed last week, oil prices have climbed from around $72 a barrel to $84, though they remain well below the roughly $120 peak seen earlier in the year.

"The recent rise in energy prices, driven by a pick-up in tensions in the Middle East, could pose a risk to the growth outlook, with financial conditions also tightening as a result," Selfin warned. Higher energy costs threaten to squeeze household and corporate budgets, potentially choking off the consumer spending currently supporting the economy.

The data lands as Andy Burnham takes over as prime minister. Paul Dales, chief UK economist at Capital Economics, observed that the May growth "is not a bad welcome gift for incoming PM Andy Burnham". He added a caveat: "But with higher energy prices still restraining real incomes, he shouldn't get used to it."

A Treasury spokesperson sought to frame the numbers as a validation of its broader strategy. The government pointed to the UK recording the fastest growth in the G7 during the first quarter, stating: "We have the right economic plan which has put the UK in a much stronger position than two years ago... with the OECD agreeing that we have restored stability."