UK GDP has managed to edge out a slight boost of 0.1% in May after a fall of 0.1% in April, although experts warned there were plenty of challenges ahead.
Relatively strong performance from the services sector (up 0.3%) was offset by production falling by 0.5% and construction falling by 0.8%. In the services sector, professional, scientific and technical activities were the main contributor to the good growth.
This news comes as a welcome development for Prime Minister-in-waiting Andy Burnham, despite ongoing supply chain disruptions caused by the conflict in the Middle East.
Danni Hewson, head of financial analysis at AJ Bell, said: “For incoming prime minister Andy Burnham, it’s a positive note to begin on.
“But 0.1% growth is hardly cause for celebration and certainly nowhere near the momentum needed if ordinary people are going to feel the country is working for them.
“The UK might have delivered the fastest growth in the G7 at the start of the year, but it’s a low bar.”
Rob Morgan, chief investment analyst at Charles Stanley Direct, warned that after a decent start to the UK, some of the momentum has started to fade. While the hot summer and the World Cup have provided a short-term reprieve for some consumer businesses, autumn could be a “sting in the tail.”
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“The step up in the energy price cap, higher borrowing costs and the possibility of more energy market disruption could weigh as the year progresses.
“Meanwhile, the approach of what stands to be a seismic autumn Budget could undermine business and consumer confidence.” The Burnham government inherits weak growth and stretched public finances, which gives it limited options to balance the books moving forward, Morgan noted.
Lindsay James, investment strategist at Quilter, added that while the UK economy has weathered fears of its declining momentum, there were still plenty of worries ahead.
“The conflict in the Middle East has already left a significant mark on the economy, and while today’s GDP print is better than expected, there is still a risk that the fallout is far from over,” James said. The recent renewal of tensions and the resulting rise in oil prices have demonstrated this.
These have left the Bank of England with a “tricky path to navigate”, James noted. “Growth is still relatively weak, and inflation risks remain very much alive, particularly with energy and commodity markets still vulnerable to further geopolitical shocks.”
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