Britain’s economic output grew more than expected in May, providing an early boost to the newly-elected Labour government. The Office for National Statistics (ONS) reported that Gross Domestic Product (GDP) growth reached 0.4% in May, compared to no growth in April. Analysts had predicted a more modest expansion of 0.2%.
Government’s Response to Growth
Rachel Reeves, Britain’s new finance minister, responded positively to the data. “Delivering economic growth is our national mission, and we don’t have a minute to waste,” she stated. Reeves, the first female chancellor of the exchequer, emphasized that the country is embarking on a “decade of national renewal.”
Labour Party’s Victory
The Labour party, led by Prime Minister Keir Starmer, won a decisive victory in the recent general election, ending 14 years of Conservative rule. Reeves has pledged to “fix the foundations” of Britain’s economy, focusing on renewable energy and housing development.
Sector-Wide Growth
Liz McKeown, ONS director of economic statistics, noted that the UK economy saw growth across all major sectors in May. Retailers and wholesalers experienced a rebound following a slow April, attributed to poor weather conditions. The construction sector also saw its fastest growth in nearly a year, driven by housebuilding and infrastructure projects. The services sector remained a key driver of growth, contributing significantly to the economic expansion.
Implications for Monetary Policy
Analysts suggest that the stronger-than-expected GDP data might influence the Bank of England’s (BoE) decisions on interest rates. Susannah Streeter, head of money and markets at Hargreaves Lansdown, indicated that the economic growth could make BoE policymakers more cautious about cutting interest rates at their next meeting on August 1. Initially, markets anticipated a rate reduction at the upcoming meeting, but a September cut now seems more probable. Following the release of the data, the British pound reached a four-month high against the dollar.
The unexpected economic growth in May provides a positive start for the new Labour government. As the country moves forward, the focus will be on maintaining this momentum and addressing foundational economic challenges.