The UK economy shrank by 0.1% in May, following a 0.3% decline in April, catching markets off guard.
Forecasters had expected a modest rebound. Instead, the data paints a picture of an economy struggling to regain momentum after a short-lived boost earlier in the year.
The services sector managed to stay just above water, rising by 0.1%, propped up by IT and professional services. Legal activity also saw some recovery after a slump linked to stamp duty changes in April. But elsewhere, output slipped. Manufacturing fell sharply, while construction contracted 0.6%, and retail performance remained underwhelming.
Production output was down 0.9%, dragged by weakness in car manufacturing and pharmaceuticals. The Office for National Statistics highlighted particularly soft activity in oil and gas extraction, as well as a further drop in the volatile pharma segment.
The unexpected back-to-back contraction has tempered hopes of a steady recovery, with economic activity now appearing more fragile than anticipated. While the broader March-to-May period still posted 0.5% growth, thanks to a strong Q1, that momentum now looks increasingly dated.
Nicholas Hyett, investment manager at Wealth Club, said: “Some strength in the IT and professional services sectors mean services growth as a whole scraped into positive territory for the month. However, that was not enough to offset contractions in manufacturing and construction sectors, meaning the UK economy shrank unexpectedly in May.”
He added that the downturn was being shaped in part by external pressures and domestic policy shifts, such as US tariffs hitting carmakers early on, and stamp duty changes weighing on housing-related activity. While some of these headwinds may prove temporary, the broader challenge is identifying what turns sentiment around.
The government has pledged to make growth a priority, but today’s figures offer a sharp reminder that structural weaknesses, alongside higher labour costs and looming fiscal pressures, continue to hold the economy back.