The UK economy grew 0.1% in May, rebounding from April's 0.1% contraction, but the Iran conflict's drag on energy-intensive sectors and a slowing three-month trend suggest the rebound is more technical than transformative. Services output rose 0.3%, led by a 5.1% surge in scientific research and development, but production fell 0.5% and construction dropped 0.8 percent, a split that bears the fingerprints of higher energy costs and shipping disruption from the Middle East hostilities.
The three-month-on-three-month measure, which smooths monthly volatility, slowed to 0.7% from 0.8% in the period to April, and the ONS itself noted the last two months showed a weaker picture. Analysts at the ICAEW called the rebound dishearteningly weak, warning GDP still looks stagnant for the second quarter as a whole. Suren Thiru, the institute's chief economist, said the Iran conflict helped suppress activity in construction and industrial production despite a warm-weather uplift to retail.
The data lands as Rachel Reeves prepares to exit the Treasury on Monday, replaced by Shabana Mahmood in Andy Burnham's incoming cabinet. Reeves used a Mansion House speech this week to claim she had stabilized the economy, but the Resolution Foundation estimates more than half of the £23.6bn fiscal headroom she banked at the spring statement has already been erased by the war's economic effects.
The Treasury counters that the UK posted the fastest G7 growth in the first quarter, that the OECD agrees stability is restored, and that Britain is forecast to borrow less than the G7 average this year for the first time since 2004. The IMF recently lifted its full-year growth forecast to 1%, up 0.2 percentage points from April.
Oil prices have spiked again since fighting resumed this week, and the British Chambers of Commerce says rising energy costs and shipping disruption are creating real uncertainty for firms. With a new chancellor taking over and fiscal headroom shrinking, the May print may be the last clean read on the Reeves economy before the Burnham-Mahmood team inherits the consequences.