All areas of the economy expanded, including construction, travel, and manufacturing. However, the companies said higher operating costs forced them to set prices for customers. As household disposable income falls further in the autumn as energy prices rise again, there is "a real risk" that the economy could slide into recession, says Paul Dales, chief economist at Capital Economics in the UK. “This could mean the economy will be a poisoned cup for whoever wins the race for the next prime minister,” he added.
Conservative MPs will vote for leadership on Wednesday, but whoever replaces Boris Johnson faces a dilemma: how to deal with the rising cost of living. Both businesses and households are suffering from rising prices, which are rising at the fastest rate in 40 years due to record high fuel and energy costs. The price growth rate was 9.1% in May and is expected to reach 11% at the end of this year.
Andrew Bailey, governor of the Bank of England, has promised to bring inflation down to a 2% target, which is called "no if or but". It has raised rates five times since December and is expected to rise again next month. He denounced that the Bank would "take strong action", suggesting that it could raise interest rates by more than 0.25%.
The rising cost of living has prompted unions to call for higher wages to help workers cope. In some industries, such as the railroads, workers went on strike over wages.
But the government is warning employers against large wage increases for fear of a 1970s-style "inflationary spiral" in which companies raise wages and then pass the costs on to customers through higher prices.
Economy recovering
Darren Morgan, director of economic statistics at ONS, said the UK economy "recovered" in May thanks to growth in key sectors, including construction, which saw a surge in home and office renovations. "Health was the most important factor and many more people went to the GP despite testing and monitoring and scaling back of vaccination programs," he added.
GDP, or gross domestic product, measures the activity of companies, governments, and individuals in an economy. Part of the way GDP is calculated involves measuring the total value of goods and services produced by all sectors of the economy: agriculture, manufacturing, energy, construction and healthcare, and government. In the health sector we do not pay. for services through the NHS, so an indicator of how things are going is the number of GP appointments, which gives an indication of how things are going in that part of the economy.
The UK economy returned to solid growth in May, growing 0.5%, despite fears of monthly stagnation. The service sector was responsible for half of the growth, mainly health care, including GP appointments. Monthly figures are volatile, but thanks to some previous upward revisions, growth was 0.4% in the three months to May. However, consumers have shown signs that the cost of living is hurting them, as wholesale and retail markets slowed the economy in May.
The ONS also reported that respondents in its surveys reported passing higher prices to consumers, including fuel, electricity, nickel, cobalt, aluminium, steel, paper, fish and vegetable oil. The numbers offer some hope that the economy will avoid a dangerous recession. But many expect the economy to fall again in June. Data for the full second quarter will be released next month.
The Organization for Economic Co-operation and Development (OECD) warned in June that the UK economy will grow slower than expected this year and stagnate next year as consumers cut spending and commodity prices remain high. Meanwhile, the International Monetary Fund (IMF) said the UK will become the slowest-growing of the world's largest economies by 2023.
David Bharrier, head of research at the British Chamber of Commerce, said May's rise was "welcome news" but "masks serious problems linked to the growing imbalance in the economy". He said it was "alarming" that a recent survey found that longer-term business confidence is beginning to crumble. "The current political instability will only increase uncertainty among small businesses," he said.
In addition, the economy continues to face huge structural challenges, including uncertainty about the UK's relationship with the EU, ongoing Covid lockdowns in China, supply chain disruptions and skyrocketing energy prices.
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