The UK economy experienced a stronger-than-expected growth in May, driven by robust performances in the retail and construction sectors. According to the Office for National Statistics (ONS), the economy expanded by 0.4%, recovering from stagnant growth in April, which had been affected by wet weather that discouraged shopping and hindered construction projects.

In May, the construction sector saw its fastest growth in nearly a year, spurred by house building and infrastructure projects. Liz McKeown of the ONS noted that many retailers and wholesalers had a successful month, rebounding from a weaker performance in April.

The services sector, which includes businesses such as hairdressers and hospitality and is a major component of the UK economy, grew by 0.3% in May. The construction sector saw an even more significant increase, jumping by 1.9%.

Addressing economic growth was a key issue in the recent general election. The new Labour government has introduced several measures aimed at boosting growth. Chancellor Rachel Reeves announced the reintroduction of housebuilding targets, an overhaul of planning restrictions, and an end to the effective ban on onshore wind farms in England. Additionally, a new National Wealth Fund has been established to attract investment in infrastructure and green industries.

Economists caution against placing too much emphasis on month-to-month changes in economic activity, as factors like weather can significantly influence these shifts. In the three months leading up to May 2024, the UK’s gross domestic product (GDP) grew by 0.9% compared to the previous three months. This marked the fastest growth rate in over two years, driven largely by strong performance in the services sector, according to the Office for National Statistics (ONS).

Analysts suggest that this stronger-than-expected growth may reduce the likelihood of the Bank of England cutting interest rates at its next meeting in August. Previously, there had been hopes for a rate cut from the 16-year high of 5.25%. Interest rates were initially raised to curb inflation, which has now fallen back to the Bank’s target of 2%.

Despite the positive inflation figures, two members of the Bank’s Monetary Policy Committee (MPC) have expressed concerns about ongoing inflationary pressures. Rob Wood, chief UK economist at Pantheon Macroeconomics, noted that the UK economy is recovering well from last year’s minor recession. He mentioned that rate-setters are eager to ease policy and were unconcerned about stronger-than-expected growth, as indicated in the minutes of their June meeting. Nevertheless, Wood believes the MPC will likely wait until September to reduce the Bank Rate.