The UK economy expanded at a pace significantly exceeding expectations in May

In May, UK gross domestic product (GDP) rose by 0.4% month-on-month, surpassing April’s 0.2% increase and exceeding expectations for a 0.2% rise. The Bank of England’s projection of 0.5% growth for the second quarter now appears conservative.

Annualized GDP in May saw a 1.4% uptick, compared to a 0.7% growth the previous month, surpassing the consensus forecast of a 1.2% rise. This stronger-than-anticipated growth in May has boosted optimism and provided momentum for Prime Minister Starmer’s new government.

However, the better-than-expected economic performance raises doubts about the likelihood of an interest rate cut by the Bank of England next month, as the probability of a rate cut has dropped below 50%. The robust increase in economic output in May was driven by growth across all three key sectors—services, manufacturing, and construction—providing additional support for the new Labour administration’s goal of achieving sustained, rapid growth among the G7 advanced economies