Britain's economy shrank by 0.1% in May, marking a second consecutive monthly contraction and missing economists’ expectations for a slight rebound (+0.1%). The latest figures from the Office for National Statistics follow a 0.3% drop in April, raising fears of an overall contraction in the second quarter.
The weak performance reflects growing pressure from U.S. tariffs, domestic tax increases, and sluggish consumer demand. Manufacturing and construction continued to decline, while services posted only marginal growth and retail sales dropped sharply.
The downturn comes despite a strong first quarter, when GDP expanded by 0.7%—largely driven by a rush to finalize home purchases and boost exports ahead of U.S. tariffs. That momentum has since faded, with the economy now facing rising business costs, a £26 billion payroll tax hike, and increases in energy bills, rail fares, and stamp duty. More than 250,000 jobs have been cut since the autumn budget, adding to the drag on growth.
Prime Minister Keir Starmer and Chancellor Rachel Reeves now face mounting pressure. Recent U-turns on welfare and winter fuel payments have left a tighter fiscal backdrop and speculation over further tax rises in the autumn budget. While a recent UK-U.S. trade agreement has eased some tariff pressures, Bank of England Governor Andrew Bailey has warned that persistent uncertainty continues to weigh on investment.
Markets expect the BOE to start cutting rates later this year as inflation cools, but growth remains fragile, with the Office for Budget Responsibility projecting just 1% GDP expansion in 2025.