Britain’s economy unexpectedly shrank in May, fuelled by sharp declines in manufacturing and construction, in a blow for chancellor Rachel Reeves.
The Office for National Statistics said gross domestic product fell by 0.1% in May, missing City predictions of a 0.1% monthly expansion.
It was the second month of contraction in a row after a 0.3% drop in April as businesses cut jobs and cancelled investment plans in response to higher taxes and uncertainty created by Donald Trump’s tariff war.
The latest figures show declines in construction, oil and gas extraction, car manufacturing and the production of pharmaceuticals outweighed a return to growth in Britain’s dominant service sector.
Manufacturing output had risen sharply in the first three months of the year as businesses rushed to beat the introduction of Trump’s 2 April “liberation day” tariff announcement, fuelling an increase in exports. While a slowdown was likely after US importers filled their inventories, manufacturers have been hit by uncertainty.
“These downbeat figures undoubtedly increase anxiety over the health of the UK economy, with tumbling construction and manufacturing activity causing a disheartening decline in overall output,” said Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales.
The latest figures come as Labour’s growth plans are under the microscope amid mounting speculation over the need for large tax rises at the autumn budget after Keir Starmer’s high-stakes welfare U-turn this month.
Ministers have warned of “financial consequences” after the government backtracked on changes to disability benefits that would have been worth more than £6bn in savings for the Treasury. That adds to the £1.25bn the Treasury needs to find to cover May’s climbdown on winter fuel payments.
Mel Stride, the shadow chancellor, said Labour’s U-turns had “created a ticking tax timebomb” for the economy. “Thanks to Labour’s reckless choices the economy actually shrank in May. This will pile even further pressure for tax rises in the autumn.”
Reeves said the latest figures were disappointing and that the government had a lot more to do to support growth. “Getting more money in people’s pockets is my number one mission. While today’s figures are disappointing, I am determined to kickstart economic growth and deliver on that promise.”
Analysts and business leaders have, however, warned that tax increases could weigh on growth by sapping household and business confidence.
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Ben Jones, the lead economist at the CBI, said: “With growing fiscal challenges and the autumn budget on the horizon, the chancellor must provide clear reassurance – no new taxes on business and instead offer a commitment to work alongside firms to dismantle barriers to growth.”
Britain’s economy had grown rapidly in the first quarter of 2025, outstripping other countries in the G7 club of advanced economies with an expansion of 0.7%. However, activity is expected to remain subdued over the rest of the year. The independent Office for Budget Responsibility has forecast GDP growth of 1% for 2025 as a whole but will revisit that projection in the run-up to the autumn budget.
While the UK has struck a deal with the US to mitigate Donald Trump’s steepest tariffs, alongside forging closer ties with the EU, the Bank of England governor, Andrew Bailey, has warned that trade policy uncertainty still clouds the outlook.
Economists widely expect the Bank to cut interest rates from the current level of 4.25% at its next meeting in August, amid mounting concerns over the strength of the economy despite lingering inflationary pressures.
