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Britain’s economy showed stronger growth than expected in May

Photo Credit: Reuters

Britain’s economy showed stronger growth than expected in May, which could provide a favorable starting point for Prime Minister Keir Starmer’s new government. The Office for National Statistics reported a 0.4% increase in economic output for May, surpassing economists’ expectations of a 0.2% rise as per a Reuters poll.

This unexpected growth raises questions about the Bank of England’s planned interest rate cut in August, with recent comments from policymakers highlighting concerns about domestic inflationary pressures. Market expectations for a rate cut have dipped below 50%, reflecting uncertainty about future monetary policy.

May’s economic expansion was broad-based, with significant contributions from the services, manufacturing, and construction sectors, the latter notably boosted by a 1.9% increase driven by house-building.

For Prime Minister Starmer’s Labour administration, which aims to achieve the fastest sustained growth among G7 economies, these early economic indicators are promising. Economists like Ashley Webb from Capital Economics suggest that the improving economic outlook could benefit the government more than initially forecasted.

Over the three months leading up to May, the economy grew by 0.9%, the strongest quarterly performance since early 2022, exceeding the consensus expectation of 0.7% growth. The Bank of England’s earlier prediction of 0.5% growth for the second quarter now appears conservative given the recent data.

Overall, the faster-than-anticipated economic growth sets a positive tone for the new government’s economic agenda, despite lingering uncertainties surrounding future monetary policy decisions.

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