Reeves: Fall in GDP is disappointing
Chancellor Rachel Reeves has described the latest GDP figures as “disappointing”.
Following this morning’s news that the UK economy contracted by 0.1% in May, Reeves points to the government’s efforts to support households financially:
“Getting more money in people’s pockets is my number one mission. While today’s figures are disappointing, I am determined to kickstart economic growth and deliver on that promise.
“The choices we have made in our first year in government have seen us extend the £3 bus fare cap, fund Free School Meals for over half a million more children, press ahead with plans to deliver free breakfast clubs for every child in the country and increase the National Minimum and National Living Wage, giving a pay rise to 3 million workers.
“There’s more to do, that’s why in the Spending Review we boosted investment and jobs, through better city region transport and record funding for affordable homes, as well as backing major projects like Sizewell C.”
[Reminder: economists had expected the UK economy returned to growth in May, but GDP has actually fallen by 0.1% during the month, pulled down by a fall in manufacturing output].
Key events
The UK economy has been choppy over the last year, as this chart shows:
The National Trust redundancy news will cause “huge worry among staff”, says the Prospect union.
Steve Thomas, Deputy General Secretary of Prospect, says:
“At a time when Prospect members at the National Trust are hard at work welcoming the public to Britain’s historic venues over the busy summer months, this news will cause huge uncertainty and worry for staff.
“We understand the cost pressures the Trust is facing but management decisions, as well as external factors, have contributed to the financial situation and once again it is our members who will have to pay the price.
“Our members are custodians of the country’s cultural, historic and natural heritage – cuts of this scale risk losing institutional knowledge and skills which are vital to that mission.
“Prospect will be working with NT to try to minimise the negative impact of these cuts on both workers and on the operation of the trust.”
National Trust to cut at least 550 jobs after £10m rise in costs from Reeves’s budget
Sarah Butler
The National Trust is to cut at least 550 jobs in a cost-cutting drive that aims to save £26m after changes made in the chancellor Rachel Reeves’s debut budget pushed up labour costs, my colleague Sarah Butler has learned.
The conservation charity, which looks after 500 historic houses, castles, parks and gardens, said a more than £10m rise in costs in employer’s national insurance and the legal minimum wage in April had outstripped an increase in income from welcoming more visitors.
“Although demand and support for our work are growing with yearly increases in visitors and donations; increasing costs are outstripping this growth,” the group said in a statement.
The cuts will affect 6% of its 11,000-strong workforce, the equivalent of 550 full-time jobs. Staff were informed of the cuts in an online briefing on Thursday, as a 45-day consultation began.
More here:
The Bank of England needs to cut interest rates “before it is too late”, warns Alexandros Xenofontos, economist at City consultancy TS Lombard:
Xenofontos explains:
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Savings stay abnormally high – but only the top-income bracket is adding to them; lower and middle earners are already dissaving as essentials bite.
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Fiscal drag and still-tight monetary policy offset wage gains; the UK now carries the steepest tax burden in the G7, keeping real-income growth subdued
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BoE has little room to stay restrictive as the UK is in danger of remaining in a high-mortgage and high-tax regime.
Britain’s trade with the rest of the world picked up in May.
The ONS reports that total goods exports increased by £900m (3.1%) in May 2025, after inflation, with exports to the EU up £600m and non-EU exports rising by £300m.
William Bain, head of trade policy at the BCC, says UK trade showed “signs of stabilising in May” as the initial impact of higher US tariffs began to subside.
“Goods exports to the US rose by £0.3bn in May after a rollercoaster few months, but export levels are still significantly below where they were six months ago.
“More predictable tariff and trading conditions are key to providing our businesses with certainty. Further implementation of the UK-US deal would enhance those prospects, together with successful negotiations with the EU, and stronger export performance in the Indo-Pacific region. This should include the opportunities of enhanced trade with the CPTPP states and ratification of the trade deal with India.
“If this is combined with a full rollout of the policies from the recent UK Trade Strategy, then businesses will be given the confidence needed to invest and grow their global trade links throughout 2025 and beyond.”
The UK and US agreed a trade deal in early May, but cuts to tariffs on car imports weren’t cut until the end of June.
Professor Joe Nellis, economic adviser at accountancy and advisory firm MHA, says the 0.1% fall in GDP is “a far cry” from the stronger growth in Q1 2025, when the UK was the fastest-growing member of the G7.
Nellis says:
Growth over the first half of the year is now expected to be modest. Despite a more positive outlook for the remainder of the year, this presents a challenge to the Chancellor — her fiscal headroom remains limited by high levels of public borrowing and debt and her spending plans are heavily reliant on kickstarting the economy.
Just as last year, we now wait tentatively for the Autumn Budget to find out how the Chancellor aims to solve her fiscal problems.
Scottish start-up to make off-road EVs
Jasper Jolly
Some good news for the economy: A Scottish startup is hoping to manufacture the first cars in the country for more than 40 years, with an electric off-road vehicle that it hopes to beat rivals to market.
Munro Vehicles has said it has orders worth £17m for 246 of its £63,000 all-electric Series-M four-by-fours, which share similar looks to classic Land Rover Defenders.
The company hopes to be the first since the 1980s to mass-produce vehicles in the country, my colleagues Jasper Jolly and Zahra Onsori report.
Scotland’s most famous vehicle was the Hillman Imp, a small car designed to rival the Mini. It was built at Linwood, near Glasgow, but the factory was closed in 1981.
The Munro name refers to mountains in Scotland with a height over 3,000 feet. Munro Vehicles was founded in 2019 by Russell Peterson, 35, and Ross Anderson, 28, and would face a difficult battle to make profits in the car industry dominated by giant companies.
However, the company hopes to steal a march on off-road rivals. Jaguar Land Rover has been relatively slow in creating electric versions of the Defender, despite its “transition into an electric future for all brands”. British billionaire Jim Ratcliffe built the Ineos Grenadier when JLR abandoned its classic design, but he has also focused on petrol and diesel versions, in part because of concerns over the lack of chargers for off-road uses.
Munro has appointed Avinash Rugoobur, a former executive with failed British startup Arrival, to try to make the leap to production.
“All the components are there to ensure success,” said Rugoobur.
“There is a clear need for such a specialist vehicle from customers in industries such as agriculture, emergency response, defence, infrastructure and mining, targeting net zero.”
However, no British startups have succeeded in building electric vehicles at scale. Vehicle company Tevva, who launched their 7.5 tonne battery electric truck in 2023, filed for insolvency last year after being unsuccessful in their attempt to look for investors. Arrival itself entered administration last year despite once being valued at $15bn, highlighting how precarious the EV industry can be for new companies.
Munro delivered four of its first vehicles to customers last year, and said that the vehicle had gone through 18 months of off-road testing and engineering.
Britain’s computing industry has a good May.
The largest positive contribution to services growth during the month came from the information and communication subsector, which grew by 2.0%.
That included a 3.0% increase in the computer programming, consultancy and related activities industry.
Chart: production sector was main contributor to 0.1% fall in GDP in May
This chart shows how the UK production sector was the main contributor to the 0.1% fall in GDP in May 2025.
Reminder: production output fell by 0.9% in May, while construction output dropped by 0.6% and services sector output rose 0.1%.
It’s possible, but not likely, that the UK economy will have shrunk in the April-June quarter, say Investec.
Following this data [the 0.1% drop in GDP in May], a contraction in activity in Q2 as a whole is possible, but this is still not our base case.
Thanks to carry-over effects of a strong end to Q1, and assuming no revisions to the back data, activity in June could have contracted by 0.2% on the month and the economy would still have grown in Q2, albeit by only the slimmest of margins.
From there we expect GDP to continue to expand, although we do not imagine the pace of growth will be breaking any records anytime soon.
[We’ll get June’s GDP data, and the full report for Q2, in a month’s time].
Read the full story here
Richard Partington
If you’re just tuning in…. Britain’s economy unexpectedly shrank in May, fuelled by sharp declines in manufacturing and construction, in a blow for chancellor Rachel Reeves.
The Office for National Statistics said gross domestic product fell by 0.1% in May, missing City predictions of a 0.1% monthly expansion.
It was the second month of contraction in a row after a 0.3% drop in April as businesses cut jobs and cancelled investment plans in response to higher taxes and uncertainty created by Donald Trump’s tariff war.
The latest figures show declines in construction, oil and gas extraction, car manufacturing and the production of pharmaceuticals outweighed a return to growth in Britain’s dominant service sector.
Manufacturing output had risen sharply in the first three months of the year as businesses rushed to beat the introduction of Trump’s 2 April “liberation day” tariff announcement, fuelling an increase in exports. While a slowdown was likely after US importers filled their inventories, manufacturers have been hit by uncertainty.
More here:
PwC: UK could slip down G7 growth rankings
There’s a danger that the UK slides down the G7 growth league table, warns Barret Kupelian, chief economist at PwC, following the fall in GDP in May:
“A single month’s GDP is like a lone brushstroke; it tells you little. However, when paired together with other months, it gives us an indication of the direction of travel for the economy. And that story is beginning to turn sour for the UK.
“Today’s data release showed us that the growth momentum recorded earlier in the year is slowing down rapidly as the economy contracted on a monthly basis for a second time in a row in May (see chart).
“Despite the early May fanfare over the US-UK economic prosperity deal (EPD), output in the car and pharmaceutical industries contracted. Tariff uncertainty still hangs over industry like a stubborn fog. The services sector grew marginally, offsetting some of the negative momentum in the rest of the economy.
“Our main scenario projection before today’s data release showed the UK middle-of-the-pack when ranked amongst the G7 on economic growth for this year, growing at about 1%. Now, with growth momentum rapidly slowing, there’s a genuine risk we slip down the rankings.”
FTSE 100 index hits new high, as 9,000 point mark
May’s weaker-than-expected growth report has not spooked the City.
Instead, the FTSE 100 blue-chip index has risen slightly, hitting a new intraday high for the second day running.
The FTSE 100 index gained almost 9 points, or 0.1%, to 8984 points, putting the 9,000 points mark in reach for the first time.
Energy giant BP (2.3%) is leading the risers after it reported a rise in oil, gas & low carbon energy production in the last quarter.
ING: UK GDP falls in May amid growing concern about the economic outlook
Analysts at Dutch bank ING say there are “growing concerns” about the UK economy, not helped by the drop in GDP in May.
But…. they also point out that the UK GDP figures have been incredibly volatile this year, and suggest that “May’s decline looks more like noise than signal”.
[Actually, there’s a broader debate on the wisdom of calculating GDP data each month, rather than wrapping the data up each quarter as most other countries do].
James Smith, ING’s developed markets economist, points out that May’s weakness follows a very strong first quarter, when the UK economy grew by 0.7% thanks to tariff frontloading and stronger home sales ahead of the stamp duty change in April.
He adds:
Though it would be wrong to conclude from the GDP data alone that the economy is coming under greater pressure, there are genuine questions emanating from the jobs market and whether it is beginning to fall apart more quickly.
Remember that in May, payrolled employment fell at the sharpest rate outside of the pandemic (the data has been produced since 2014). This data may well be revised up, as is fairly common, but if that doesn’t happen – and indeed if June’s data is as bad as May’s – then it would raise difficult questions for both the Bank of England and the Treasury.
Stride warns of ‘ticking tax timebomb’
Shadow chancellor Mel Stride has claimed the UK is facing a ‘ticking tax timebomb’, not helped by the economy shrinking in May:
“Thanks to Labour’s reckless choices the economy actually shrank in May.
“This will pile even further pressure for tax rises in the autumn.
“Labour’s costly U-turns, on winter fuel and welfare, have created a ticking tax timebomb.”
Thanks to Labour’s reckless choices the economy actually shrank in May. This will pile on even further pressure for tax rises in the Autumn.
Under Labour – taxes hiked, inflation & unemployment up & growth stagnant. We can’t afford Labour. https://t.co/dllo3Zf56i
— Mel Stride (@MelJStride) July 11, 2025
Bank of England expected to cut rates in August
The drop in GDP in May, and April, will put more pressure on the Bank of England to cut interest rates at its next meeting, in early August.
Richard Flax, chief investment officer at wealth manager Moneyfarm, says:
With inflation continuing to ease and economic momentum faltering, the case for an interest rate cut has strengthened. Markets are now likely to price in a higher probability of a 25 basis point cut, potentially bringing the base rate down from 4.25% to 4.00%.
The BoE may view this contraction as a signal that tight monetary conditions are weighing too heavily on growth.
Deutsche Bank’s Sanjay Raja agrees, predicting a cut in August, and more later this year:
For now, weakness in GDP will cement some on the MPC’s fears that demand is loosening faster than expected. An August rate cut looks almost certain. And we expect more to come in Q4-25.
Suren Thiru, ICAEW economics director, says a rate cut next month is ‘inevitable’:
“The UK’s growth trajectory in the near term is likely to tilt downwards as any uplift from higher consumer and government spending is hampered by escalating business caution, amid fears of further tax rises in this Autumn’s Budget.
“The lack of momentum in the UK economy indicated by these sluggish figures means that an August interest rate cut currently looks inevitable, despite the recent spike in inflation.”
Deutsche Bank: We don’t think UK economy is at risk of faltering
Sanjay Raja, Deutsche Bank’s chief UK economist, has some encouraging words for Rachel Reeves.
He told clients this morning that Deutsche Bank does not think the UK economy is at risk of faltering.
He points out that there are encouraging economic signs:
The latest PMI data point to a rebounding economy. Household sentiment is on the rise (albeit gradually). And business sentiment has pushed above its long-run average (see the Lloyds Business Barometer and Deloitte CFO survey). Credit conditions… look steady and healthy.
And some tentative indicators are already pointing to a stabilisation in the labour market (HR1 redundancy notifications, vacancies, and DMP).
Fiscal capex should be pushing through the economy too. And some productivity growth via trade deals with India and the EU (agri-food deal) should pose some upside to supply growth over the next several quarters.
Raja adds that it’s “easy to be pessimistic on the UK economy” after two disappointing monthly falls in GDP, saying:
Certainly, there are big questions on manufacturing – which has been in the doldrums for some time now. Some defence spending should help. But we will need a global manufacturing recovery to kickstart the sector. This is the big unknown for the UK economy.
Big picture, though, it’s also worth taking a big step back: if the economy does indeed slow to 0.1% q/q in Q2-25, this would still mean that the UK economy had grown by 0.8% in the first half of the year, which would still be pretty healthy.