UK economy flatlines as coronation hangover hits

According to figures from the Office for National Statistics (ONS) on Thursday, the UK economy experienced a milder-than-expected contraction in May, while industrial output fell and goods shortages widened.

According to the ONS, real gross domestic product (GDP) is estimated to have fallen by 0.1% in May from the previous month, after growing by 0.2% in April.

May’s reading was higher than the FXStreet-quoted consensus of a 0.3% decline.

The ONS said GDP showed no growth in the three months to May 2023, compared with the three months to February. GDP in May 2023 was 0.4% lower than in May 2022, compared with 0.5% annual growth in April.

„The move to Platinum Jubilee and the May bank holiday has led to an extra working day in May 2022 and two fewer working days in June 2022,” the ONS said.

„This should be taken into account when interpreting the seasonally-adjusted movements covering May and June 2022.”

Danny Hewson, head of financial analysis at AJ Bell, said the figures show resilience, but not strength.

„It could have been a lot worse. Those three lovely, long bank holidays might have made many of us happy, but we knew it would come at the expense of economic growth.

„Factories, GP surgeries and schools all closed shop as the country celebrated the coronation of King Charles with an extra day off, which provided a nice boost but cut across sectors from manufacturing to services.

„The fact that the contraction came in at just 0.1% demonstrates the resilience of the UK economy, which has been hit by inflation, rising interest rates and strike action.

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„But there’s no point in looking at the picture through rose-colored glasses, because it’s clear that resilience is far from robust.”

Separately, the ONS reported that UK industrial production continued to contract in May.

On a monthly basis, industrial production fell 0.6% in May, worsening from a 0.2% decline in April, and reducing market forecasts for a 0.4% decline.

On an annual basis, industrial production fell 2.3% in May, in line with forecasts, and fell further from a 1.6% drop in April. April’s figures were revised down from a 0.3% monthly drop and a 1.9% annual drop.

The monthly decline in May was driven by declines in three of the four manufacturing sectors. Electricity and gas production fell 2.0%, water supply and sewerage fell 1.7%, and manufacturing fell 0.2%. These were offset by a 0.3% rise in mining and quarrying.

The ONS has also updated UK trade data for May.

The value of goods imports rose 4.2% from the previous month to 50.5 billion pounds, or 5.9% when adjusting for inflation. Meanwhile, good exports fell 4.4% month-on-month to 30.7 billion pounds, or 3.2% excluding inflation.

This resulted in a total trade deficit in goods of £19.8 billion, an increase of £3.5 billion from the previous month.

The total trade deficit in goods and services fell by £5.9 billion to £18.2 billion in the three months to May 2023, compared with the three months to February, the ONS said.

This was a result of a large decline in imports and a rise in exports.

By Elizabeth Winter, Alliance News Senior Markets Correspondent, with additional reporting by Morningstar UK Editor Ollie Smith

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