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The latest official figures reveal that the UK economy experienced growth in May, following a contraction the month before. According to the Office for National Statistics (ONS), the economy expanded by 0.1%, primarily driven by developments in the service sector. However, increases in services were balanced out by declines in the production and construction areas.
The slight downturn in April coincided with the onset of the US-Israel conflict involving Iran, which began to impact business activity. Over the three months leading up to May, the economy showed a 0.7% increase compared to the previous quarter. Liz McKeown, director of economic statistics at the ONS, noted, “The economy recorded robust growth in the three months to May, though the pace eased slightly as the latest two months showed a weaker picture.” She also highlighted the strong performances in “computer programming and advertising,” alongside the “often-volatile pharmaceutical industry.”
While the year started positively for the UK economy, recent months have seen some weakening, influenced in part by the Middle East conflict. The war involving Iran has contributed to higher oil and fuel prices and disrupted supply chains. The ONS reported that various sectors, including manufacturing, hospitality, travel agencies, and entertainment, had identified the conflict as a factor affecting their operations.
Chief economist at KPMG, Yael Selfin, suggested that summertime factors like warmer weather and the World Cup could have buoyed spending through June and July, though she warned this may not compensate for weaknesses in other areas of the economy. She stated, “The recent rise in energy prices, driven by a pick-up in tensions in the Middle East, could pose a risk to the growth outlook, with financial conditions also tightening as a result.” Since hostilities resumed recently, oil prices have climbed from around $72 to $84 per barrel, still below the peak of approximately $120 seen earlier in the year. Paul Dales, chief UK economist at Capital Economics, commented on the growth, describing it as “not a bad welcome gift for incoming PM Andy Burnham,” but added a cautionary note: “But with higher energy prices still restraining real incomes, he shouldn’t get used to it.” A Treasury spokesperson responded to the recent data by emphasizing confidence in the government’s economic strategy, affirming that it has “put the UK in a much stronger position than two years ago with the fastest growth in the G7 in the first quarter and the OECD agreeing that we have restored stability.
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