UK economy shrinks another 0.1% in disaster for Rachel Reeves

The UK economy shrank by 0.1% in May, dealing a fresh blow to Chancellor Rachel Reeves. Figures published by the Office for National Statistics (ONS) on Friday showed that gross domestic product (GDP) fell, missing City forecasts which had predicted a 0.1% increase. It follows a 0.3% fall in April, when businesses cut jobs and held back investment due to higher taxes and uncertainty over global trade.

New data from the Office for National Statistics (ONS) showed the fall in May was driven by a sharp drop in manufacturing, construction and production output. The biggest fall came from the production sector, which dropped 0.9% in May. This included a 1% fall in manufacturing output, with nine of the 13 manufacturing industries shrinking.

Pharmaceutical manufacturing fell by 4.2% after a surge earlier in the year, which had been linked to companies rushing orders before higher US import tariffs.

The car industry also struggled, with transport equipment output down 1.3%, and metal production falling 1.8%.

Construction output fell by 0.6%, partly reversing April's 0.8% rise. But the services sector, which makes up most of the economy, grew by 0.1%.

Legal firms recovered after a quiet April caused by changes to stamp duty thresholds. However, retail sales remained weak.

The latest figures cast doubt on whether the economy grew in the second quarter of 2025.

The Bank of England had forecast 0.25% growth between April and June, but the ONS says the economy would need to show at least flat growth in June for that to be achieved.

The UK had one of the fastest-growing economies among G7 countries in the first quarter of the year.

But much of that growth was linked to the end of a temporary tax break for homebuyers and a spike in exports ahead of Donald Trump's tariffs.

The slowdown comes as Labour faces increasing scrutiny over its economic plans.

The government has already reversed changes to disability benefits and winter fuel payments, decisions expected to cost the Treasury over £7 billion.

As a result, ministers have now warned of "financial consequences" in the autumn budget.

The Office for Budget Responsibility still expects the UK economy to grow by 1% this year, but that forecast could change in the months ahead.

Bank of England Governor Andrew Bailey has also warned that global trade tensions are still affecting the UK economy, despite better ties with the EU and an agreement with the US to soften the impact of tariffs.