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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound hits 15-month high as UK GDP shrinks in May; sickness threat to economy – business live

GDP United Kingdom Economy United States King Charles III OBR Sanjay Raja Deutsche Bank the Office for National Statistics
A souvenir shop in Windsor, Britain, in May.
A souvenir shop in Windsor, Britain, in May. Photograph: Tolga Akmen/EPA

Afternoon summary

With the pound trading firmly over $1.31 for the first time since April 2022, it’s time to wrap up.

Here are today’s main stories, firstly on this morning’s GDP report:

….the state of the UK public finances…

…The cooling housing market:

And also:

Government bonds are also strengthening, on the back of signs that US inflation pressures are easing.

The yield, or interest rate, on five-year UK government bonds has dropped to its lowest since 29 June at 4.568% (yields fall when prices rise).

Hunt: Our plan will get inflation down

Chancellor Jeremy Hunt has declared that the UK will match the US, Germany and France and get inflation down.

He made the pledge in a Twitter thread, explaining today’s deal on public sector pay:

(UK inflation was 8.7% in May, four times over the Bank of England’s target of 2%)

Haleon plans sweeping job cuts a year after being spun off from GSK

The company behind Sensodyne toothpaste, Centrum vitamins and Panadol painkillers plans widespread layoffs in the UK and around the world a year after being spun off from Britain’s second-biggest drugmaker GSK, my colleague Julia Kollewe reports.

Weybridge-based Haleon, which has 24,000 staff across 170 countries, plans to cut hundreds of roles in the UK and potentially thousands worldwide, the Guardian understands.

The company is one of the world’s biggest consumer healthcare groups and sells over-the-counter drugs, vitamins and oral care products.

Staff were briefed on the redundancies this week in a series of meetings and a consultation process, which started on Wednesday, will close on 25 August. Some people will be offered other roles within the company.

Those who are laid off are expected to leave Haleon in September.

Here’s the full story:

Updated

The euro has also rallied against the dollar.

The single currency has gained 0.5% to $1.1195, its strongest level since the end of February 2022.

And against a basket of currencies, the dollar has dropped to a new 15-month low this afternoon.

The dollar continues to weaken after today’s drop in US PPI wholesale inflation, on top of yesterday’s fall in consumer price inflation (CPI) to 3%.

Pound on longest winning streak of 2023

Sterling is on track for its 6th daily gain against the US dollar in a row, which would be its best run since last December.

The pound has rallied from $1.27 a wek ago to $1.31 today, as traders have calculated that UK interest rates will keep rising this year, while US rates could be near their peak.

Pound hits $1.31

Sterling has continued to climb against the US dollar, following that fall in US wholesale inflation just reported.

The pound has just hit $1.31 for the first time since April 2022, adding to its earlier gains, up around a cent today.

Back in the UK, the government has paid a hefty price to borrow in the financial markets today.

Reuters’ David Milliken has the details:

Britain sold £3.5bn of inflation-linked government bonds maturing in 2045 via a syndication on Thursday, for which investors will receive a yield of 1.241% on top of inflation, the UK Debt Management Office said.

The real yield is the highest for any index-linked gilt sold via syndication since these sales began in 2005, although more regular auctions have seen higher yields, most recently in October 2022 when markets were shaken by former prime minister Liz Truss’ “mini budget”.

US wholesale inflation slows to a crawl

Just in: Price pressures across the US economy relaxed last month, in a sign that inflation is easing.

US producer price inflation, which measures what goods makers and service providers charge, fell to just 0.1% per year in June.

That’s down from 0.9% year-on-year in May, and 11.2% in June 2022 when companies were hiking prices at a hot pace.

This fall in wholesale inflation should feed through to consumers in coming weeks and months.

Over in the US, the number of people filing new unemployment claims has dropped.

There were 237,000 fresh ‘initial claims’ for jobless support last week, down from 249,000 a week earlier, and lower than expected.

This implies American firms are continuing to hold onto staff, despite the pressure from rising interest rates…

Today’s fiscal risks and sustainability report “does not make for cheerful reading”, points out Paul Johnson, director of the Institute for Fiscal Studies:

Rishi Sunak agrees to public sector pay rises... without raising budgets

Millions of public sector workers to get pay rise of around six per cent, the UK government has decided, but the increases must (somehow) be found from within existing budgets.

Under the plan, teachers will get a rise of 6.5%, while junior doctors and NHS consultants will get 6% and armed forces personnel at least 5%.

Rishi Sunak is asking public-sector trade unions to end the strikes that have weighed on the economy in recent months, saying the offer is final. The teaching unions have said they will recommend the deal to their members, meaning strikes can be called off.

Aubrey Allegretti, our senior political correspondent, reports:

Police officers, junior doctors and teachers in England are among those who would benefit after the prime minister, Rishi Sunak, accepted all the recommendations of the independent pay review bodies.

Senior government figures are understood to have been concerned about the effects of the pay boost on stubbornly high inflation.

Earlier this week, the chancellor, Jeremy Hunt, ruled out providing any extra money funded through borrowing. The move will leave departments facing difficult decisions about how to reallocate spending, with potential knock-on effects for frontline services cuts.

The Treasury had budgeted for pay rises of about 3.5%, meaning between £3bn and £5bn will need to be found across Whitehall to make up the shortfall…

Updated

UK rules allowing agency workers to cover strikes are unlawful, court says

Over in the high court, a judge has quashed legal changes brought by the government to let agency staff fill in for striking workers.

It’s a victory for a group of unions, including Aslef, the RMT and Unite, who joined in legal challenges to “strike-breaking” regulations announced last summer by the government as it faced widespread industrial action across rail and other sectors.

In a verdict delivered today, Mr Justice Linden ruled that the approach taken by ministers was “so unfair as to be unlawful and, indeed, irrational.”

In a written ruling, Mr Justice Linden said he would “quash the 2022 regulations”.

Unions argued that the changes to regulations announced by the then business secretary, Kwasi Kwarteng, undermined the right to strike, and were made unlawfully.

Responding to the judgment, Unite general secretary Sharon Graham said:

“This is a total vindication for unions and workers. The government’s decision to allow employers to recruit agency workers to undermine legal strike action was a cynical move to back their friends in business and weaken workers’ legal rights to withdraw their labour.

“It was entirely counterproductive as rather than weaken industrial action it has hardened attitudes and unnecessarily extended strikes. This ill-thought out, divisive legislation must be consigned to the dustbin of history.”

Full story: Fast-rising borrowing costs leave UK public finances at great risk, warns OBR

The UK’s public finances are in a “very risky period” after a series of major shocks that have driven the nation’s borrowing costs to rise at the fastest rate in the G7, the Treasury’s tax and spending watchdog has warned.

The independent Office for Budget Responsibility warned national debt could surge to more than 300% of gross domestic product (GDP) by the 2070s, up from about 100% today, and warned the government is not taking measures to make big changes in the short term.

It said the government faced a “number of challenges” in meeting Rishi Sunak’s target to get the national debt falling as a share of national income within five years’ time.

Despite promises made by successive Conservative-led governments to reduce Britain’s debt pile, the OBR said the objective was only achieved in three out of the last 12 years – and by a relatively small 3.4 percentage points in total.

In a downbeat assessment in its latest fiscal risks report, the OBR said other governments were also facing heightened pressure on their public finances from rising global interest rates pushing up the cost of servicing debt.

However, it warned the UK had the highest level of inflation-linked debt among G7 economies, making it more vulnerable to shocks, with debt interest costs rising in the UK at twice the pace of any country in the club of advanced economies between 2019 and 2022.

Rachel Reeves, the shadow chancellor, said:

“This report just how far we are falling behind our peers, how exposed our economy is and again highlights that the government is failing to take action in areas like energy security to help get bills down.”

Growing sickness is among gravest fiscal risks facing UK

Today is a “watershed moment” as the Office for Budget Responsibility recognises that growing sickness is among the gravest fiscal risks faced by UK, says the IPPR thinktank.

Chris Thomas, head of the IPPR’s landmark Commission on Health and Prosperity, says:

“Today, the OBR has concluded that better health is one of the clearest paths to prosperity in the UK – but that, through a decade of austerity, a global pandemic and an NHS crisis, the UK is off-track and well behind other comparable countries. On the same day, NHS waiting lists have hit new highs, and the NHS in England has admitted it may not meet the prime minister’s pledge to reduce these before the next election.

“This is a watershed moment. IPPR research also shows that sickness is harming earnings, driving millions out of the labour market, and blocking economic justice across the country. On the flipside, these challenges represent opportunities – if the right policies, and political courage, can be found.

“If we want prosperity for all, we must deliver good health for all. We call on ministers to commit to a health equivalent of net-zero – a 30-year commitment to make the UK the healthiest country in the world. That means a bold agenda for NHS reform, but also putting in place the foundations of a healthy life: better housing, top quality education and good work.”

Updated

UK second-worst in G7 for burden of disease

The OBR has also highlighted that the UK has had the second-highest burden of disease in the G7 after the US since 1990.

Today’s Fiscal Risks report shows that the UK has the lowest healthy life expectancy at birth of any major developed economy bar the US, and had a slower rate of progress over the 2010s than all apart from the US and Canada.

A chart showing G7 health levels

Improvements have stalled across most countries since 2010, and the disease burden rose slightly in the US, Canada and the UK in the years immediately prior to the pandemic, the report says.

The OBR points out that the UK has persistently higher mortality rates from cancers and respiratory diseases than other advanced economies, and higher rates of adult obesity than Germany, France, Italy and Japan,

A chart showing UK health levels

Updated

Adverse shocks to the UK’s financial health seem to have become “more frequent, severe, and costly,” the Office for Budget Responsibility warns today.

Today’s Fiscal Risk report says the UK has been hit by a succession of shocks – the Covid pandemic, the energy and cost-of-living crisis, and the sudden interest rate rises in 2022. They have proved twice as costly as all similar shocks in the second half of the last century.

It says:

So far this century, we have experienced three major shocks, adding around 20 per cent of GDP to debt on average. This is twice the intensity and twice the fiscal cost of the shocks that the UK witnessed over the latter half of the 20th century.

If such shocks were to be repeated into the future, this could add a further 125 per cent of GDP to the already unsustainable levels of debt implied by the above baseline dynamics taking debt to 435 per cent of GDP by the mid-2070s.

A chart of UK debt projections

The UK is more vulnerable than many other advanced economies to shifts in global sentiment, the Office for Budget Responsibility warns.

Today’s fiscal risks report points out that more UK debt is in the hands of private foreign investors than most other G7 countries.

The OBR says:

The UK Government has historically relied upon a large pool of long-term domestic savers, in particular pension and insurance funds, as end investors in its debt. However, over the course of this century the share of UK government debt in foreign (non-official) hands has almost doubled from 13 to 25%, the second highest in the G7 and 2 percentage points below France.

This potentially renders the UK public finances more vulnerable to sudden changes in global investor sentiment regarding the relative attractiveness of UK sovereign assets.

That risk, in part, arises from the likely reduction over time in the demand for sterling debt from pension funds with sterling liabilities, which has generated a fairly inelastic demand for gilts.

The OBR also highlights how the UK’s debt servicing costs are set to rise, partly because a slice of the debt mountain is linked to inflation.

Today’s report says:

The share of UK gilts whose value is directly indexed to RPI inflation (‘index-linked gilts’) has risen from about 10% in the late 1980s to around 25% last year, more than twice as much as the second largest advanced-economy issuer, Italy, at 12%.

Updated

The OBR warns that reducing the NHS’s record waiting lists will only have a small impact on Britain’s labour shortage.

Today’s Fiscal risks and sustainability states that only a relatively small proportion of those inactive for health reasons are on the NHS waiting list.

Thus:

While the disruption to and difficulties in accessing NHS services may have played a role in the worsening physical and mental health of the working-age population during this period, tackling the NHS waiting list alone is likely to make only a modest difference in the number of people out of work.

We estimate that halving the NHS waiting list over five years – returning it to its mid-2015 level of around 3½ million – would only reduce working-age inactivity by around 25,000.

OBR: UK debt could hit 300% of GDP by the 2070s.

Newsflash: the UK national debt could hit 300% of GDP by the 2070s, as the aftershocks of the early 2020s continue to pose risks to the UK public finances, Britain’s fiscal watchdog has warned.

The Office for Budget Responsibility has just issued its latest Fiscal Risks and Sustainability Report.

And it warns that the public finances have come under growing pressures, due to the Covid-19 pandemic, rising health-related economic inactivity from 2020, the energy price shock, and now rising interest rates

These challenges have already pushed UK public debt above 100% of GDP in May (for the first time in over 60 years) and the cost of servicing it to a 40-year high, the OBR warns.

And the watchdog warns that the national debt could triple, as a share of the economy, within 50 years.

It says:

Against this more vulnerable backdrop, an ageing society, a warming planet, and rising geopolitical tensions no longer loom in the distance but pose significant fiscal risks during this decade, and could push debt above 300 per cent of GDP by the 2070s.

The OBR cites three key threats to the public finances: the aging baby boomers, global heating, and rising security threats.

They all pose significant fiscal risks in this decade, the OBR fears.

It says:

  • as the ‘baby boom’ cohorts enter retirement and high inflation ratchets up the cost of the triple lock, state pension spending is expected to be £23 billion in today’s terms (0.8 per cent of GDP) higher in 2027-28 than at the start of the decade;

  • as global temperatures rise and the 2050 deadline for reaching net zero draws closer, rising take-up of electric vehicles is expected to cost £13 billion a year in forgone fuel duty by 2030, while the public investments needed to support the decarbonisation of power, buildings, and industry could reach £17 billion a year by that date; and

  • in response to growing security threats in Europe and Asia, the Government has said it aspires to increase defence spending – for the first time in seven decades – from 2 to 2.5 per cent of GDP, at a potential cost of £13 billion a year in today’s terms.

It’s a weighty report, and the OBR are helpfully tweeting the key points now:

Updated

UK lenders report biggest increase in mortgage defaults since mid-2009

UK lenders have reported the biggest increase in mortgage defaults since the aftermath of the financial crisis.

Today’s Bank of England credit conditions survey shows that a net balance of 30.9% of lenders said the default rate on secured loans to households had risen in the second quarter of 2023. That’s the highest reading since the second quarter of 2009.

Looking ahead, 41.2% of lenders expect mortgage defaults to rise in the June-August quarter, the highest proportion since the end of last year.

Mortgage defaults have been low since the 2008-09 crisis, with lenders offering forebearance rather than choosing to repossess homes.

Last month the government announced a new Mortgage Charter, to force lenders to offer support to struggling mortgage-holders.

Updated

UK GDP: mortgage payers’ worst fears are likely to come true

For mortgage payers, the latest economic growth figures are a disappointment, my colleague Phillip Inman writes.

The 0.1% contraction in gross domestic product (GDP) between April and May tells the Bank of England that the jump in interest rates over the previous 18 months has only had a mild dampening effect on the economy.

A majority of the central bank’s decision-making body – the monetary policy committee – have shown they want to see a much bigger downturn to reduce consumer spending before they pause regular increases in the cost of borrowing.

As such, a further interest rate rise from 5% looks likely next month, whatever the inflation rate for June turns out to be when it is published next week. More here.

Pound at new 15-month high

The pound has hit a fresh 15-month high this morning, after the UK economy shrank by less than expected in May.

Sterling traded at $1.306 against the US dollar for the first time since April 2022, up 0.5%.

The rally follows this morning’s GDP report showing a smaller contraction than feared in May despite the extra bank holiday to mark King Charles’ coronation and ongoing strikes.

The pound vs the US dollar over the last two years
The pound vs the US dollar over the last two years Photograph: Refinitiv

The pound has gained almost 8% against the dollar this year, lifted by the prospect of rising interest rates to cool inflation.

Yesterday it hit $1.30 for the first time in 15 months, after a surprisingly large fall in US inflation raised hopes that the US Federal Reserve could soon end its cycle of rate increases.

As covered earlier, the smaller-than-feared drop in GDP in May could encourage the Bank of England to keep raising interest rates.

Victoria Scholar, head of investment at interactive investor, says:

The pound hit a 15-month high this week against the US dollar after US CPI fell to 3% in May while the UK still struggles with sky-high price pressures with growing potential interest rate differentials boosting the allure of sterling.

GBPUSD is in the green this morning, trading above the key $1.30 handle and the pound is also higher against the euro.”

Updated

UK mortgage rates have risen again.

The average 2-year fixed residential mortgage rate today is 6.75%, Moneyfacts reports, up from the 15-year high of 6.70% yesterday.

The average 5-year fixed residential mortgage rate is now 6.27%, up from 6.20% on Wednesday.

UK lenders expect mortgage supply and demand to fall

Just in: UK lenders expect to curb the availability of mortgages and consumer credit in the next three months.

The Bank of England’s latest Credit Conditions Survey also showed lenders expect demand for mortgages to fall sharply in the third quarter.

Lenders told the BoE that they had curbed the availability of secured credit (such as a mortgage) to households in the three months to the end of May, and expect this to decrease further over the next three months to the end of August.

The availability of unsecured credit to households was unchanged in the last quarter, and was expected to decrease slightly in June-August.

A chart showing secured credit availability
A chart showing secured credit availability Photograph: Bank of England

Lenders reported that demand for secured lending for house purchase and remortgaging increased in the last quarter, but was expected to decrease in Q3 – likely due to the impact of higher interest rates.

IEA cuts 2023 oil demand forecast as economic headwinds rise

Just in: the International Energy Agency has trimmed its forecast for oil demand this year, due to the headwinds hitting the global economy

The IEA still believes oil demand will hit a record high this year but factors such as interest rate hikes mean the increase will be slightly less than anticipated.

Global oil demand is projected hit 102.1 million barrels per day, a new record, and an increase of 2.2 million barrely per day.

But, the IEA says a “deepening manufacturing slump” means it has cut its 2023 growth estimate for the first time this year, by 220,000 barrels per day.

In its monthly oil report, the IEA says:

World oil demand is coming under pressure from the challenging economic environment, not least because of the dramatic tightening of monetary policy in many advanced and developing countries over the past twelve months.

Growth in 2023 has been revised down for the first time this year, to 2.2 mb/d from 2.4 mb/d expected previously, with China poised to account for 70% of the total.

Here’s Darren Morgan, director for economic statistics at the ONS, on the UK May GDP report released this morning:

“GDP fell slightly as manufacturing, energy generation and construction all fell back, with some industries impacted by one fewer working day than normal.

“Meanwhile, despite the coronation bank holiday, pubs and bars saw sales fall after a strong April. Employment agencies also saw another poor month.

“However, services were flat overall with health recovering, with less impact from strikes than in the previous month, and IT also had a strong month.”

Poundland sales keep rising

A branch of Poundland in Altrincham.
A branch of Poundland in Altrincham. Photograph: Phil Noble/Reuters

UK customers continue to flock to discount retailer Poundland, in the cost of living crisis.

Parent company Pepco Group has reported that like-for like sales at Poundland jumped by 9% in the three months to 30 June, due to strengthening demand for fast moving consumer goods (FMCGs).

Trevor Masters, CEO of Pepco Group, said:

“As we highlighted at our interim results in June, the macro-economic climate continues to be challenging, particularly in Central Europe, due to elevated levels of inflation.

Recruitment firm Hays has reported a slowdown in hiring by UK companies.

Fees at Hays, which makes money by finding new staff to fill vacancies, fell by 7% in the UK and Ireland in the April-June quarter.

Fees for filling permanent positions fell by 15% as “activity levels slowed”, Hays told the City this morning.

It blamed “reduced client and candidate confidence”, with employees less willing to change jobs in the current economic climate, as the ‘great resignation’ stalled.

But, fees continued to be supported by positive profit margins and wage inflation,

Income from private sector companies fell 12%, but there was an 8% rise in fees from the public sector. Fees in London decreased by 10%.

Economic research institute NIESR fears that UK growth will remain ‘anaemic at best’ in the months ahead.

Paula Bejarano Carbo, NIESR associate economist, points out that interest rates (now 5%) are suppressing demand:

The “harsh reality” is that the UK economy has barely grown for a year and a half, points out Ed Monk, associate director for Personal Investing at Fidelity International.

After the small fall in May, GDP remains only a fraction above where it was before the start of the pandemic more than three years ago, Monk point out, adding:

“Recession has been held at bay so far - let’s see what the rest of the year holds - but pressures are building in several areas. Both construction and production fell in May, and services only avoided falling because medics were on strike for fewer days than the month before.

“The Bank of England has spelled out the strain mortgage borrowers will come under in the next two years. Unemployment is now rising and vacancies for jobs are now beginning to fall back too.

“Yet despite stagnant growth, inflation remains stubbornly high with nominal wages still accelerating - albeit at a slower rate than price rises. You have to worry that the UK will experience a more sudden deterioration in the economy at some stage soon.

Once the rate rises are felt more widely, and house prices fall further and employers cut their budgets for pay rises, sentiment could quickly unwind.”

Pressure on Bank of England to keep raising interest rates

News that the UK economy shrank a little in May will not deter the Bank of England from raising interest rates again to fight inflation, City experts say.

Neil Birrell, chief investment officer at Premier Miton Investors, explains:

“As expected, the UK economy shrank in May, but not as much as expected. Admittedly, we are a month on from that now and the economy could be weaker still, but this would not have been the picture the Bank of England wanted to see.

With inflation still rife, this keeps the pressure firmly on the Bank to keep raising interest rates, putting even more pressure on the consumer in particular.”

UK interest rates are currently 5%, and the money markets indicate they will have risen to over 6% by next spring.

Nicholas Hyett, investment manager at Wealth Club, fears the economy could be “running out of gas”.

Hyett says:

The housing market seems to be slowing, with less construction activity in housebuilding, and recruitment is seeing weakness too – potential canaries in the coal mine that suggest the economy has reached a turning point and is sliding from growth to contraction.

We suspect the Bank will take no chances and continue to hike rates, but the job of balancing inflation and economic growth isn’t getting any easier.”

Britain’s manufacturing sector shrank by 0.2% in May, as output was hit by the three bank holidays during the month.

Eight of the 13 subsectors in manufacturing contracted, led by ‘manufacture of wood and paper products, and printing’ which fell by 3%.

A chart showing how UK manufacturing fell by 0.2% in May

Hunt: extra bank holiday and inflation hit growth in May

Chancellor of the Exchequer, Jeremy Hunt, says that bringing down inflation will help the economy:

“While an extra bank holiday had an impact on growth in May, high inflation remains a drag anchor on economic growth.

“The best way to get growth going again and ease the pressure on families is to bring inflation down as quickly as possible.

“Our plan will work, but we must stick to it.”

That plan includes resisting pressure for public sector pay increases, which has led to the longest industrial action in the history of the NHS which starts today as junior doctors go on strike for five days.

Updated

ICAEW: Floundering economy putting PM’s growth pledge at risk

May’s GDP report shows that the UK economy was “floundering” even before the impact of recent interest rate rises are fully felt, says Suren Thiru, economics director at ICAEW (the Institute of Chartered Accountants in England and Wales).

The extra bank holiday for the Coronation curbing output in May, points out Thiru, who warns that Rishi Sunak’s growth pledge is at risk.

Thiru says:

“While the economy may rebound in June, the significant squeeze on activity from high inflation, stealth tax hikes and rising interest rates means the Prime Minister may struggle to meet his pledge to get the economy growing.

“These GDP figures are unlikely to prevent another rate rise in August. However, given the long time lag between rate rises and its effect on the real economy, tightening further risks damaging our growth prospects by overcorrecting for past errors.”

The largest contribution to the fall in consumer-facing services in May came from food and beverage service activities.

GDP in the sector fell by 1.1% in May, after growth of 2.4% in April.

The next largest contribution came from buying and selling, renting and operating of own or leased real estate, which fell 0.7% after a similar fall in April.

There was also anecdotal evidence that industrial action in May 2023 hit the economy, today’s GDP report shows.

That includes strikes in the public sector, and on the rail network.

The ONS says:

The health sector (nurses), rail network, education sector and the civil service all saw industrial action take place in May 2023 and this should be considered when interpreting monthly movements in these industries.

We also had some anecdotal evidence to suggest that the rail network industrial action had an adverse impact in terms of footfall for food and beverage service activities.

Digging into the report, it shows that human health activities actually grew by 1.8% in May, having shrunk in March and April.

The ONS says:

There was no industrial action by junior doctors in May 2023, compared with four days of industrial action in April 2023. There were two days of industrial action by nurses in England in May, compared with none in April.

ONS: Factories and builders blame Coronation for reduced output

A range of manufacturing industries and construction businesses cited the additional bank holiday for the Coronation of King Charles III, on Monday 8 May, as a reason for reduced output during the month.

But, the ONS reports that other sectors of the economy benefited from the festivities.

Today’s GDP report says:

On the positive side, we had comments suggesting industries in the arts, entertainment and recreation sector benefitted from the extra bank holiday.

There were also comments on both increased and reduced output received in the accommodation and food services sector.

Updated

UK GDP: The key charts

A chart showing UK GDP to June
A chart showing UK GDP to June 2023

May’s contraction means that monthly UK GDP is now estimated to be just 0.2% above its pre-coronavirus levels set in February 2020.

UK GDP shrank by 0.1% in May

Newsflash: Britain’s economy shrank slightly in May, with GDP falling by 0.1% as the dominant services sector stagnated and factories contracted.

The Office for National Statistics said that gross domestic product fell on the month, after growth of 0.2% in April.

That’s slightly better than expected, as City economists had forecast a fall of 0.3% in May. They feared that the extra bank holiday for King Charles’s coronation hit activity, while the economy continued to be held back by the cost of living squeeze, and public sector strikes.

But looking at the broader picture, GDP has shown no growth in the three months to May 2023.

The ONS reports that production output fell by 0.6% in May, while the construction sector fell by 0.2%.

The services sector showed no growth in May, while consumer-facing services fell by 0.2% in the month.

More to follow…

Updated

Britain’s housing market showed signs of a slowdown in June, an industry survey this morning shows.

New house buyer inquiries fell to an eight-month low in June, according to the Royal Institution of Chartered Surveyors (Rics), as buyers were deterred by rising mortgage rates and anxiety about an economic downturn.

Property surveyors expect activity to remain subdued as higher borrowing costs hit new buyer enquiries. More here.

Updated

Public sector strikes also weighed on the economy in May, as workers pushed for pay rises to protect them from inflation.

Michael Hewson of CMC Markets explains:

The monthly GDP numbers for May are forecast to show a -0.3% contraction due to the multiple bank holidays during the month, as well as widespread public sector strike action, with index of services seeing a sharp slowdown from 0.3% in April to -0.2%.

The weak performance in May is likely to act as a sizeable drag on Q2 GDP, although we should see some of that recovered in June.

Introduction: UK May GDP report in focus

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

This morning we learn how the UK economy fared in May, and whether the extra bank holiday for King Charles’s coronation hit growth.

The Office for National Statistics will release May’s GDP report at 7am. Economists predict the economy contracted during the month, with activity held back by three bank holidays.

That would continue the UK’s volatile 2023 – the economy grew by 0.2% in April, after a fall of 0.3% in March.

Sanjay Raja, Deutsche Bank’s chief UK economist, predicts that GDP shrank by 0.3% in May.

He explains:

Why the fall? In short, the extra Bank Holiday as a result of the King’s Coronation.

Deutsche Bank still expect the UK economy will contract by 0.1% in the April-June quarter, putting it halfway into recession.

And with interest rates set to keep rising, the risk that UK GDP contracts next year will “rise materially”.

Raja adds:

A hard landing may be unavoidable.

Also coming up today

The UK’s independent fiscal watchdog, the Office for Budget Responsibility, is due to publish a new report on Fiscal risks and sustainability.

The OBR is expected to warn that rising interest rates are hurting the public finances, scuppering any lingering prospect of pre-election tax cuts.

The report will also examine the impact of higher gas prices, and the role of sickness in explaining the rise in people dropping out of the workforce.

And to further dampen the mood, the OBR will also run through some of the “wider range of risks to the UK economy and public finances”.

The agenda

  • 7am BST: UK GDP report for May

  • 9am BST: IEA’s monthly oil market report

  • 10am BST: OBR publishes fiscal risks and sustainability report

  • 1.30pm BST: US PPI index of producer price inflation for June

  • 1.30pm BST: US weekly jobless claims report

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The Independent UK
The Independent UK
“I go to church every Sunday when I’m home. Especially now I’ve replaced the booze with glue”: From GN’R and Pantera to Ozzy Osbourne and God, Zakk Wylde is the most connected man in rock
It’s Zakk Wylde’s world - we just live in it
Metal Hammer
Metal Hammer
My husband and I tried the Scandi Sleep Method and love it — 3 reasons you will too
We avoided a sleep divorce thanks to the Scandinavian Sleep Method, but will it work for you too? Three telltale signs that it will...
Tom’s Guide
Tom’s Guide
45 Years Ago, A Disney Misstep Was A Secret Sci-Fi Masterpiece
The haters were wrong. On its 45th birthday, 'The Black Hole' is just as wonderfully manic as ever. Here's why this flop is actually worth your time.
Inverse
Inverse
Black long COVID patients ignored
New research found that those living with long COVID in the U.S. had significantly more anxiety and depression
Salon
Salon
Jared Leto’s latest ‘iconic’ role leaves fans divided
‘Skeletor was going to make or break this movie,’ said one fan
The Independent UK
The Independent UK
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