Chancellor should be sweating buckets as the economy turns cold

UK GDP fell 0.1% month-on-month in May, following a 0.3% fall in April, versus market expectations of 0.1% growth.

Services output grew 0.1% month-on-month, construction output fell 0.6% month-on-month and production output fell 0.9% month-on-month.

Nicholas Hyett, Investment Manager at Wealth Club said, “Some strength in the IT and professional services sectors mean services growth as a whole scraped into positive territory for the month. However, that was not enough to offset contractions in manufacturing and construction sectors, meaning the UK economy shrank unexpectedly in May.

Higher US tariffs seem to be causing some of the UK’s woes, especially in car manufacturing  – which faced the full brunt of tariffs early on. Changes to stamp duty have also weighed on the construction sector.

“An optimist might argue these are one off headwinds – US tariffs on UK cars have already been softened, and the housing market will get moving again once its had time to adjust. The problem is that it’s difficult to see what turns things around.

Higher living wages and employers national insurance may already be hurting labour intensive industries like retail and leisure. Despite markets hitting record highs, the macro-economic picture is uncertain and taxes look set to rise substantially at the next budget.

Both weather and markets may be stuck on hot, but ultimately it’s the economy that matters and if cooling turns to economic deep freeze you might see the government start to sweat.