Warm weather and the celebrations surrounding the wedding of Prince Harry and Meghan Markle helped boost expansion in the UK’s service sector in May, according to the first set of rolling, monthly statistics on growth published by the Office for National Statistics (ONS).

UK economy expected to continue modest growth

The data showed that, after a sluggish start to the year, GDP grew by 0.3 per cent month-on-month in May, and 0.2 per cent over the quarter to May.Rob Kent-Smith, head of national accounts at the ONS, said, “The first of our new rolling estimates of GDP shows a mixed picture of the UK economy with modest growth driven by the services sector, partly offset by falling construction and industrial output.“Retailing, computer programming and legal services all performed strongly in the three months to May while house building and manufacturing both contracted.“Services, in particular, grew robustly in May with retailers enjoying a double boost from the warm weather and the royal wedding. Construction also saw a return to growth after a weak couple of months.”

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After analysing recent figures, John Hawksworth, chief economist at PwC, said it was likely that UK growth had picked up to 0.4 per cent in the second quarter of the year.“GDP growth in the three months to May was still relatively modest at 0.2 per cent relative to the previous three months, but this is dragged down by the weak performance in March, when the bad weather caused GDP growth to fall to zero.“Since then a revival in retail sales and other services sectors has led GDP growth to pick up steadily in April and May. Construction output also picked up strongly in May after a couple of weak months.“As a result, we estimate that growth in the second quarter will end up at around 0.4 per cent, given signs from business surveys of continued forward momentum in services and construction in June. “This pick-up in growth could be enough to tip the majority of the MPC (the Bank of England’s Monetary Policy Committee) towards a rate rise in August, though this is not yet a done deal given continuing uncertainties over Brexit and rising global trade tensions.”

Avoiding service sector disruption from Brexit

The dominance of the UK’s service sector, which accounts for more than three-quarters of GDP, illustrated the importance of protecting the sector from Brexit disruption, according to Anthony Kurukgy, senior sales trader at Foenix Partners.“The latest growth figures were spearheaded by the service sector, despite contraction in both production and construction industries. Last week, Prime Minister May’s ‘softer’ Brexit stance highlighted the need to protect the very sector that carries significant importance to the UK economy,” he said. 
“Although somewhat lacklustre, today’s figures show that the PM’s call to protect the freedom of services at home and across the Channel should not be jeopardised.”Suren Thiru, head of economics at the British Chambers of Commerce, said that while the latest confirmed statistics showed there had been a modest rally in economic activity after a poor start to the year, the figures also confirmed “UK growth remains underwhelming”. He added that the economic growth also masked several continuing concerns. “The persistent imbalances in the UK economy remain, so while there was solid growth in the services sector, industrial production and construction sectors are adding little to overall growth,” he said.“The widening in the UK’s trade deficit for the second successive month is also a concern and means that trade is likely to have been a drag on GDP in the second quarter of the year. It’s probable that the UK is past peak-trading conditions for exporters, with slowing global growth and the prospect of a trade war weighing on demand for UK goods and services. “While we still expect UK growth to have picked up in the second quarter as a whole, there remains little sign of a prolonged upswing in the UK’s growth trajectory. The current political and Brexit related uncertainty, as well as the failure to deal with longstanding issues such as weak productivity, are likely to weigh on economic activity over the near term.“Against this subdued backdrop, the MPC should proceed with caution in tightening monetary policy, to avoid undermining consumer and business confidence. More must also be used to boost confidence and growth, including addressing the escalating burden of up-front taxes and costs associated with doing business in the UK, and addressing the chronic skills shortage.” Jacob Deppe, head of trading at online trading platform Infinox, said the data would “fan hopes that the economy is thawing out from the cryogenised growth seen between February and April due to the freak weather”.He added, “With the World Cup almost certainly injecting momentum into the economy this month and last, there’s every reason to believe the June figure should be stronger still.“As repeatedly strong services sector data shows, UK consumers have a spring in their step and this spending is proving to be an adrenaline shot into the arm of UK Plc.“Against a backdrop of extreme political uncertainty, if not outright chaos, a solid economic foundation has never been as important.”Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory 

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