The string of bleak economic updates continues. First we had the dire report by the Office for Budget Responsibility (OBR) into fiscal risks, which showed how we’re hurtling towards financial disaster. Now we’ve got figures from the Office for National Statistics (ONS) that reveal the economy shrank in May – the second month in a row.
The data, released this morning, shows that GDP fell by 0.1 per cent in May after shrinking by 0.3 per cent in April. The ONS said the most notable contractions were in production and construction, while services (the backbone of our economy) managed to grow slightly. The contraction in production (down 0.9 per cent) was driven by a slowdown in oil and gas extraction as well as car manufacturing.
If Rachel Reeves is looking for any good news (and she will be), she can point to the three-month figures, which show growth of 0.3 per cent in the three months to May. However, the ONS made clear this was because of tariff front-loading as businesses brought forward activity from the second half of the year to beat the effects of Donald Trump’s import taxes. The result will almost certainly mean weaker growth in the months to come.
Monthly GDP figures are difficult to interpret because of how ‘noisy’ the data is, but they now point to a clear downward trend. The trajectory we’re on confirms the worst fears about the headroom the Chancellor will be left with. Weaker GDP readings mean the OBR’s economic forecasts are likely to have been over-optimistic. The result: tax rises are now inevitable.
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