According to the latest figures from the Office for National Statistics (ONS), the UK’s GDP grew by 0.3% in May, helping towards a growth rate of 0.2% for the last three months.
Rob Kent-Smith, the ONS’s Head of National Accounts, explained his Office’s figures, highlighting growth in the service industry: “Retailing, computer programming and legal services all performed strongly in the three months to May, while housebuilding and manufacturing both contracted. Services, in particular, grew robustly in May, with retailers enjoying a double boost from the warm weather and the royal wedding. Construction also saw a return to growth after a weak couple of months.”
The ONS credited May’s good weather as a partial reason for its success compared to earlier months, as well the Royal Wedding, which provided another boost to retailers. Conversely, the weaker returns over the three month period are in part blamed on March’s poor weather.
Ian Stewart, chief economist at Deloitte, analysed the figures and saw the negative side: “The long awaited bounce-back from a weak first quarter has failed to materialise, with the rolling three-month growth rate unchanged into May. The fact that first-half growth is set to be below trend hardly makes a compelling case for an August rate rise.”
On the other hand, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, argued that the positive returns from the period, while not secure, indicated that a potential August interest rate rise by the Bank of England was on the horizon. He argued that the upturn was “just strong enough to tip the balance” in that direction, “provided the government doesn’t implode before then.” The Bank of England decided not to raise its interest rates at its May meeting, instead deciding to wait for the summer’s figures and making a decision in August.
The economy’s uptick is expected to continue over the next month or two, which should see rates safely raised in August.
The World Cup has provided the expected boost to pubs, supermarkets in recent weeks, with pubs taking an estimated 33% more in England’s first group game. England’s continued progress has prolonged the retail and service upturn. Likewise, the unexpectedly hot spell has continued out of May, so when reports are collated at the end of the next quarter, the bounce back is likely to continue. Esme Harwood, a director at Barclaycard, said: “Consumer spending maintained its strong growth in June for the second month in a row. As the warm weather continues and World Cup fever sets in, it’s clear many households are prioritising fun in the sun while making the most of the summer’s best activities.”
According to City analysts, the one potential major hit the economy could take is over political turmoil, with the Tory cabinet on the verge of implosion. A General Election would certainly hit confidence over Sterling. If that doesn’t materialise, the picture looks good for the economy over the next few months.