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May 23 GDP data - reaction

ended 13. July 2023

The UK economy contracted by 0.1% in May 2023 after growth of 0.2% in April 2023, according to the latest official GDP data published this morning. Key findings below. UK newswire, Newspage, asked financial services experts for their thoughts, below.

  • Monthly real gross domestic product (GDP) is estimated to have fallen by 0.1% in May 2023 after growth of 0.2% in April 2023, which is unrevised from the previous publication.
  • Looking at the broader picture, GDP has shown no growth in the three months to May 2023.
  • Production output fell by 0.6% in May 2023 after a fall of 0.2% in April 2023, revised up from a fall of 0.3% in the previous publication; this sector was the main contributor to the fall in monthly GDP in May.
  • The construction sector fell by 0.2% in May 2023 following a fall of 0.9% in April 2023, revised down from a fall of 0.6% in the previous publication.
  • Services output showed no growth in May 2023 following growth of 0.3% in April 2023, unrevised from the previous publication.
  • Output in consumer-facing services fell by 0.2% in May 2023 following growth of 1.1% in April 2023, revised up from growth of 1.0% in the previous publication.
  • Revisions for the period January to April 2023 are included in this publication.

9 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
With the central bank seemingly set on inducing a recession, these figures were expected but there’s worse to come. The Governor has stated that two million homeowners will be paying £500 a month more on their mortgage by 2025 and these people have been largely unaffected by the rate increases so far as they are on fixed rates. The Bank of England's policy is frankly bemusing and, if it continues to hike rates, GDP data for the second half of 2023 will be bleak.
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Wes Wilkes
CEO at IronMarket Wealth
Given the May GDP data released today, we now see the difficult predicament being faced by the Bank of England. This contraction could signal to the Bank of England that its monetary policy is working and that it can stop the hikes, or perhaps not hike as aggressively. But we should be careful what we wish for, as May's data could signal a contractionary trend forming, which may signal recession on the horizon. For now, the slowing of growth could mean rates perhaps don't go as high after all, which could boost market sentiment. Bad news, in these curious times, can sometimes be good news.
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Riz Malik
Independent Financial Adviser at R3 Wealth
It is clear that despite what we are told the UK economy is slowly dying. Even though we may not be in a recession it certainly feels like one. The government and Bank of England seem desperate to tank the economy and at last they are succeeding at something . Congratulations.
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Scott Gallacher
Director at Rowley Turton
The good news is that we appear to be avoiding a major recession. However, the lack of real growth is concerning, especially considering the hope for a strong post-pandemic recovery. With the Bank of England contemplating further rate hikes to combat inflation, the situation could potentially worsen. It is crucial for individuals to proactively develop a comprehensive budgeting strategy to safeguard their financial well-being during these uncertain times. By closely managing expenses, prioritizing savings, and seeking guidance from a financial planner, you can navigate through economic challenges with greater confidence.
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John Choong
Senior Equity Research Analyst at Investing Reviews
It's bad news after bad news right now. May's GDP contraction is only going to add more fuel to the fire of negativity that's been burning for the past couple of weeks. As such, there's every right to fear that May's reading could be a precursor of recession. May's lacklustre reading was a result of flat growth in the service sector, which makes up roughly 80% of the UK economy. Meanwhile, a decline in manufacturing and construction output pushed GDP down. This wasn't helped by the additional Bank Holiday from the King's Coronation, which limited productivity. Nonetheless, considering the better weather and consumption patterns in June, May's negative GDP print should most likely be a blip, although further negative readings in the preceding months can't be ruled out. If next week's inflation figures come in higher than expected again, it could force the Bank of England's hand to hike rates rapidly to 7%. This would, almost certainly, plunge the UK economy into a recession.
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Kevin Bailey
Managing Director at Wessex Investment Management
The May GDP data just highlights how wrong the Bank of England has been to increase interest rates by both speed and amount. The MPC is focussing on the wrong data to drive its decision-making and ignoring reality.

The BoE's actions and subsequent increase in rates is fuelling the problems the economy faces. Action needs to be taken elsewhere; banks are exacerbating the problem with each increase in mortgage rates by not giving the borrowers sufficient support at the end of their fixed-rate deals. Espousing affordability as an issue yet forcing those same people to adopt the lender's standard variable rate rather than a lower fixed rate. Absolutely bonkers.

Inflation will remain higher than it should be until someone at the BoE takes the bull by the horns and deals with the issues head-on rather than relying on outdated methodology to dampen it.
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Mark Grant
Business Finance Adviser at The Business Finance Branch
Stubbornly high inflation and rising interest rates are clearly dampening the economy based on May's GDP data. Business confidence, for starters, is on its knees. In May, both the production and construction sectors shrank, with construction also revised lower in the previous month's data for April. Even the usually reliable services sector stayed level with no growth in May. The services sector has been hit for six, as consumers rein in their spending. Experts predict an economic game of 'chicken' between the Bank of England's inflation and interest rate policy and the UK economy, but it doesn't feel like it's a game where there will be any winners. The UK economy is facing an extremely challenging second half of the year.
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Graham Cox
Director at Bridging Hub
Stagflation has well and truly arrived. No growth across any sector of the economy, including the usually strong services sector, which flatlined in May. Construction fared even worse, with April's contraction of 0.6% being revised down to 0.9%. The only positive to be taken from these figures, if you can call it that, is that the economic medicine appears to be working. This might mean there is less pressure to raise interest rates, though the jury is still out on that one.
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Gary Bush
Financial Adviser at MortgageShop.com
The UK, it seems, is on a knife edge, created by the relentless increase, too late in our opinion, in the base rate. The GDP figure, while not totally disastrous yet, could well be unless the Government and Bank of England have a rethink on their strategy. Above and beyond the GDP data is true confirmation that the UK needs to rethink its bank lending and savings strategies. We have two very evident problems: firstly, the UK population doesn't save enough for the short, medium, and long term; and secondly, the swap rate lending situation creates market and public panic when there are other factors also in play, e.g. the Ukraine war and a high UK inflation rate. Personally, I think the retail funding model needs to be used more to reinvigorate the savings culture the UK used to have and provide a more reasonable supply of mortgage funding. Borrowers could then be made aware that access to mortgages is linked to their demonstration of savings, regardless of which provider holds them.