UK economy picks up speed in May, according to new official data

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The UK economy picked up speed in May, following the severe snow disruption earlier in the year, according to the latest data from the Office for National Statistics (ONS).

In its first monthly GDP report, the ONS estimated that GDP expanded by 0.3 per cent in the month, up from a 0.2 per cent rate in April.

Manufacturing grew by 0.4 per cent, following the 1.3 per cent plunge in April.

Construction also jumped by 2.9 per cent, after steep falls in the first quarter.

Services, which account for around 80 per cent of output, expanded by 0.3 per cent, down from the 0.4 per cent rate in April.

But the ONS said that warm weather and the royal wedding on 19 May had supported retailers.

On a quarter-on-quarter basis the GDP growth rate in May was also judged to be 0.2 per cent, up from 0 per cent in April.

The ONS has shifted from a quarterly estimate of GDP growth to a new rolling monthly indicator, arguing that this new series will lead to more timely estimates of the UK economy’s performance.

Growth returns

Its most recent quarterly estimate had shown that growth fell to 0.2 per cent in the first quarter.

The Bank of England expects growth to bounce back to 0.4 per cent in the second quarter, which would be in line with the central bank’s estimate of the UK’s potential growth rate.

The bank’s Monetary Policy Committee (MPC) and its governor, Mark Carney, have argued that the slowdown in early 2018 is predominantly weather related, but the ONS had previously judged that there were indications of an underlying slowdown too.

Tuesday’s data is likely to bolster the bank in its view.

“There is plenty of support from today’s data for Mr Carney’s contention in his recent speech that he has growing confidence the slowdown earlier in the year is proving to have been temporary,” said George Buckley of the financial services group Nomura.

Financial markets are pricing in a roughly 70 per cent probability that it will raise interest rates in August from 0.5 per cent to 0.75 per cent in order to ease inflationary pressure.

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“This is the last batch of GDP data the MPC will receive before its meeting on the 2 August. We think that the figures keep the committee on track to lift bank rate in August,” said Andrew Wishart of Capital Economics.

Separately, the ONS reported that the UK trade deficit widened to £8.3bn in the three months to May, up £5bn on the previous quarter.

This was driven by falling goods exports – particularly cars – and rising goods imports, the agency said.

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