UK Economy Sees Modest Growth in May Amid Iran War Impact

The UK's economy returned to growth in May, albeit modestly, with a 0.1% expansion driven by the service sector, according to the Office for National Statistics (ONS). This growth offset declines in the production and construction sectors. The impact of the Iran war on energy prices and supply chains affected businesses, though analysts noted the economy weathered the rise in energy prices better than expected. Incoming Prime Minister Andy Burnham faces the challenge of boosting growth amid a "fragile" economy. Over three months to May, the economy grew 0.7%.

Liz McKeown, ONS Director of Economic Statistics, highlighted "robust growth" in the three months to May, with computer programming and advertising leading, alongside a strong pharmaceutical sector. However, recent months saw growth falter due to the Middle East conflict, with oil prices rising from $72 to $84 a barrel after hostilities resumed between the US and Iran.

Fergus Jimenez-England of the National Institute of Economic and Social Research cautioned that "growth remains fragile" with eyes on the new PM for stability. Yael Selfin, KPMG Chief Economist, suggested warmer weather and the World Cup might boost June/July consumer spending but warned it may not offset broader weakness. Paul Dales, Chief UK Economist at Capital Economics, noted the growth was a "not bad welcome gift" for Burnham but advised against complacency due to higher energy prices restraining real incomes.

The Treasury responded that the UK had the "right economic plan" with the fastest G7 growth in Q1 and restored stability, per the OECD. However, Conservative Shadow Chancellor Sir Mel Stride criticized Chancellor Rachel Reeves for failing to boost growth, blaming two years of higher taxes and warning against further tax increases by Labour.