The UK economy unexpectedly contracted for a second month in a row in May, raising fears of further tax hikes.
Figures from the Office for National Statistics showed economic growth fell by 0.1% in May, following a 0.3% fall in April, despite analysts widely expecting a return to growth.
The fall was largely driven by production output, which fell by 0.9% in May. Construction shared a similar fate, with a 0.6% fall compared to growth of 0.8% in April, likely driven by the effects of President Trump’s tariff policy.
Lindsay James, investment strategist at Quilter, said: “Having gone from albeit surprisingly strong growth in the first quarter, the UK economy is struggling once again. Following a poor reading in April, the data from the Office for National Statistics today shows another fall in May of 0.1%, as businesses continue to get to grips with increased costs and consumers deal with the associated lack of confidence.”
The weaker-than-expected figures will place further pressure on the Government and raise fears of further tax hikes in the Autumn Budget.
James said: “Growth is becoming incredibly difficult to achieve for the Government, and the plans put in place so far are unlikely to move the needle in the absence of improving business and consumer sentiment in an environment of ongoing cost pressures.
“Budget speculation, as a result, is ramping up with the Government expected to raise taxes again in order to replenish the public coffers. But the associated impact this will have on economic growth cannot be forgotten.”
Danni Hewson, head of financial analysis at AJ Bell, commented: “After ‘Awful April’ the expectation was that the UK economy would have dusted itself off and at least managed to eke out a tiny amount of growth, but instead the country’s economic engine was stuck in reverse.
“The biggest concern for the Government has to be the impact of increased employment costs on hiring intentions. Updates from recruitment companies shine a light on the weakness in the labour market.
“If businesses aren’t growing and are putting investment and expansion plans on hold until they feel more confident, the weakness which seems to have become embedded in the UK economy will continue. There have been signs that confidence is improving slowly but it remains fragile, and the rest of the year looks set to be volatile.”
Main image: denise-bossarte-8rEJiVQk1Vw-unsplash
