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The recent economic data from the UK has surprised experts, as the economy contracted for the second consecutive month in May. The Office for National Statistics reported a 0.1% decrease in economic output, which was unexpected as analysts had anticipated a slight growth. Chancellor Rachel Reeves expressed her disappointment with the figures, emphasizing the government’s commitment to fostering economic growth.
The decline in economic activity was primarily attributed to a drop in manufacturing, with retail sales also experiencing significant weakness, according to the ONS. Sectors such as oil and gas extraction, car-making, and pharmaceuticals were notably affected, contributing to the overall contraction in the economy. Despite these challenges, the services sector managed to exhibit growth in May, with legal firms recovering from changes to stamp duty thresholds.
Hailey Low, an associate economist at the National Institute of Economic and Social Research, highlighted the fragility of the growth outlook as evidenced by the contractions in both April and May. She pointed out that government U-turns on spending cuts have depleted the financial resilience needed to withstand economic shocks. Moreover, with businesses scaling back hiring plans following wage and tax hikes, and public finances under strain, the prospects for growth in the medium term appear subdued, according to Ms. Low. In anticipation of her upcoming Budget, Reeves faces difficult choices as she may need to raise taxes or reduce spending to adhere to her fiscal targets.
Mick Crosthwaite, the chief executive of veterinary imaging firm Hallmarq, acknowledged the challenging economic environment marked by high inflation and interest rates. However, he expressed optimism about his company’s performance, attributing its success to being export-oriented. Despite geopolitical uncertainties and domestic tax changes, Hallmarq’s diversified international customer base allows it to sustain growth beyond the confines of the UK economy. The resilience of innovative businesses like Hallmarq underscores the potential for continued growth amid broader economic challenges
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