London Daily

Focus on the big picture.
Thursday, Jul 10, 2025

Surprise news of UK growth masks increasing pain from inflation

Surprise news of UK growth masks increasing pain from inflation

Analysis: May is only one month and there is likely to be a sharp contraction in June

Crisis, what crisis? Stagflation, what stagflation? On the face of it, the solid rise in UK economic activity in May suggests the outlook is not as bad as previously feared.

No question, the monthly estimate of growth from the Office for National Statistics was a surprise for the financial markets – and for once a surprise on the upside.

The City had been expecting gross domestic product to expand by 0.1% rather than the actual 0.5% increase. April’s decline was also smaller than originally thought – 0.2% instead of 0.3%.

Even so, a look beneath the bonnet of the economy shows evidence of the strains caused by rising inflation, especially in the services sector – which accounts for about 80% of GDP.

The ONS divides services into two main categories: consumer-facing services, which includes spending on the high street, in restaurants and hotels and on travel; and non-consumer-facing services, which includes categories such as health, education, banking and insurance.


Service sector output overall grew by 0.4% in May – in large part because of an increase in GP appointments – and was the biggest contributor to the economy’s growth. Health constitutes a big part of the economy, and has been sensitive to developments in the pandemic. In recent months, the scaling back of the test and trace and vaccine programmes has subtracted from GDP but patients have felt more confident about visiting their doctor.

Consumer-facing services, however, fell by 0.1%. There was a drop of 0.5% in the retail trade, and there was a 5.3% decline in sports, recreation and amusement activities.

It was not all bad news. As the scenes of disruption at UK airports have shown, plenty of people are looking to go abroad on holiday and this was reflected in an 11% increase for travel agencies and tour operators.

So far at least, the GDP data suggests a lot of consumers are deciding what matters to them rather than stopping spending altogether. The chances of the Bank of England raising interest rates by 0.5 percentage points rather than 0.25 points in August have probably increased.

May is only one month and there is likely to be a sharp contraction in June because of the impact of the extra bank holiday to mark the Queen’s platinum jubilee. Rising inflation will also intensify the squeeze on living standards and it is still possible the economy will contract in the second quarter as a whole. There is a bumpy road ahead.

Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
×