UK economy grew by 0.1% in May despite impact of Iran war

Rise in GDP follows a 0.1% decline in April, figures from the Office for National Statistics show

The UK economy returned to growth in May, despite the impact of the Iran war on energy costs, official figures show.

The Office for National Statistics said GDP rose 0.1% in May, in line with economists’ forecasts, after a 0.1% decline in April .

Despite April’s dip, the economy appears to have been more resilient in the face of rising energy costs linked to the Middle East conflict than some analysts had feared.

Rachel Reeves, who is expected to depart as chancellor on Monday when the prime minister-in-waiting, Andy Burnham, selects a new cabinet, is likely to take the data as fresh evidence that her economic plan was bearing fruit.

Services output was up 0.3% over the month, the ONS said, but was partly offset by a 0.5% decline in production, which includes manufacturing, and a 0.8% fall in construction.

The strongest contributor to monthly output was scientific research and development, the ONS said, which was up 5.1%.

Over the three months to May – a period that tends to provide more stable data – GDP growth was up 0.7%, a modest slowdown from the 0.8% seen in the three months to April.

Liz McKeown, the ONS director of economic statistics, said: “The economy recorded robust growth in the three months to May, though the pace eased slightly as the last two months showed a weaker picture.”

However, analysts pointed out that GDP still looks likely to be stagnant over the second full quarter of the year.

Suren Thiru, chief economist of the ICAEW, said: “This dishearteningly weak rebound is unlikely to ease anxiety over the UK’s economic health as the Iran conflict helped suppress activity in key sectors like construction and industrial production, despite a warm weather uplift to retail.”

The British Chambers of Commerce said the data showed the urgent need to help companies with rising costs.

“The Iran conflict is having real-world consequences for UK firms. Rising energy prices and shipping disruption are increasing costs and creating uncertainty across the economy,” said the BCC’s research manager, Stuart Morrison.

Reeves – who is expected to be replaced by Shabana Mahmood – gave a defiant Mansion House speech this week, defending her record and insisting that she had put the economy on a more stable footing.

The International Monetary Fund recently upgraded its forecast for UK GDP growth for the year as a whole, to 1%, up 0.2 percentage points from its April forecast .

However, the UK economic outlook remains highly uncertain and oil prices have risen sharply again since hostilities resumed in the Middle East this week, underlining the economic challenges facing Burnham as he takes over.

The Resolution Foundation thinktank reckons more than half of the £23.6bn in “headroom” that Reeves left herself against her fiscal rules at the spring statement will be wiped out by the effects of the war.

A Treasury spokesperson said: “We have the right economic plan which has put the UK in a much stronger position than two years ago with the fastest growth in the G7 in the first quarter and the OECD agreeing that we have restored stability.

“We’re forecast to be the fastest growing European G7 economy this year and next, inflation is steady, and for the first time since 2004, we are forecast to borrow less this year than the G7 average.”