U.K. GDP Rose More Than Expected in May as Supply Chain Woes Ease

The British economy grew surprisingly strong in May, with construction, health care services, and travel all performing strongly and easing fears that the country is headed into recession.

Gross domestic product rose by 0.5%, the best performance in five months, thanks to a 1.4% increase in construction output and solid rises in industrial and manufacturing output, the Office for National Statistics said.

Gabriella Dickens, senior U.K. economist with Pantheon Macroeconomics, put this down to the easing of supply chain disruptions that allowed companies to catch up with fulfilling outstanding orders.

The ONS pointed to solid activity among trucking companies and travel agencies, the latter in particular profiting from the release of pent-up demand after two summers badly disrupted by the pandemic.

Over the three months to May, GDP was up by 0.4%, well ahead of a consensus forecast of stagnation.

The data are a welcome relief for U.K. assets after a big shock to consumer and business confidence from the sharp rise in energy prices and the broader rise in inflation. Analysts had expected zero growth in the month ahead of the release.

The pound rose on the news, without seriously threatening to escape the downward trend of recent weeks. By 3 AM ET (0700 GMT), sterling was up by 0.3% at $1.1923 against the dollar, and by a similar amount against the euro at 1.1876.

On Tuesday, Bank of England Governor Andrew Bailey had warned that the bank would need to bring inflation back down to 2% “no ifs, no buts,” a comment that had reinforced concerns of the economy dipping into recession later this year.

Pantheon’s Dickens said she still expects the U.K. economy to contract in the second quarter, as the extended bank holiday for the Queen’s Platinum Jubilee hits the numbers. However, this will create a low base that will make it easier for GDP to expand again in the third quarter.