UK economy jogs into growth, boosting the feel-good factor

Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’The UK has jogged into growth after stagnating on the sidelines in April, providing another boost to the feel-good factor currently reverberating.

Activity expanded more sharply than expected, with growth coming in at 0.4% for May. It was a markedly better performance than earlier in the Spring with continued recovery in the all-important services sector helping push the economy out of its stupor. The services sector is estimated to have grown by 1.1% in the three months to May 2024, compared with the three months to February 2024, the strongest quarterly growth rate since December 2021.

May’s warmer weather meant the sun shone on the construction industry in May. The sector grew by 1.9% in volume terms in May 2024, following a 1.1% fall in April with increases in new work and repairs and maintenance keeping builders busy.

This snapshot of an economy growing a bit faster than forecast, could make Bank of England policymakers that bit more reticent about voting for an interest rate cut on 1 August.  Huw Pill, the Bank of England’s chief economist is the latest to warn about the persistence of inflation in a speech yesterday in London, with hot wage growth still a concern. Although he stressed it was a question of when, not if, interest rate cuts will come, the possibility of a summer rate cut is fading, with a vote on 1 August expected to be on a knife-edge. Financial markets now estimating that there’s a 52% chance the Bank’s monetary policy committee will vote to lower the base rate at the next meeting. Before Huw Pill spoke the probability of a cut stood at more like 60%.’’