Economy flatlining as Reeves nears Number 11 exit | Money News

The UK economy grew by 0.1% in May, according to the final set of official figures ahead of Rachel Reeves’s widely expected departure as chancellor.

Data from the Office for National Statistics (ONS) showed a tick-up in output compared to the previous month when a contraction of 0.1% was recorded, abruptly ending a stronger start to the year than had been expected.

ONS Director of Economic Statistics Liz McKeown said: “The slight growth in GDP in May was driven by services alone, with production and construction both falling back.”

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The month was dominated by shock over the evolving impact of the US-Iran war on global energy prices but the government had stated ahead of its election two years ago that securing growth was its number one priority.

A sustained pick-up has remained elusive.

The start of Andy Burnham’s tenure as prime minister next week is expected to result in Ms Reeves losing her job.

While her time in office has delivered investment for the public sector, growth has dried up elsewhere.

Firms widely blame her for an explosion in costs, particularly over employment, such as through higher national insurance contributions and hikes to minimum pay levels.

Over one million people aged 16-24 are out of work. That is more than 13% of the age group.

The UK’s jobless rate stood at 4.1% when she came to office. It is currently at 4.9% – just down from a peak at the end of last year of 5.2%.

Mr Burnham has been tight-lipped over the identity of a potential replacement for Ms Reeves.

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Reeves: ‘I’m backing Burnham’

She has made no secret of the fact she wants to stay in the role, arguing she has the right plan to turn around the UK’s economic fortunes and used a speech to the City this week to push for a stronger relationship with the European Union.

A report by the Organisation of Economic Co-operation and Development (OECD) on Wednesday urged budget discipline ahead, despite pressures being placed on the economy and public finances by energy-led inflation.

It also supported efforts to shrink regional disparities when it came to growth.

Mr Burnham, who is planning a ‘Number 10 North’ to help drive this agenda, wants to transfer power out of Whitehall to give regions the ability to control essential utilities, transport and housing.

Amid market unease over his possible approach to borrowing, Mr Burnham has pledged to stick to the government’s current fiscal rules.

It’s a promise which will limit already elevated UK borrowing costs but it is also likely to frustrate the swathe of backbench Labour MPs who effectively toppled Sir Keir Starmer and brought him to power.

It effectively rules out more borrowing than already planned to fund any additional spending, and brings tax rises back in focus to cover necessities including targeted energy support and defence spending requirements.

Samuel Edwards, head of client portfolio management at financial services firm Ebury, said the outlook remained challenging for whoever was running the show.

“The economy eked out just 0.1% growth in May, failing to deliver a meaningful rebound from April’s contraction and highlighting just how fragile the UK’s economic recovery remains,” he wrote.

“The recent resurgence in tensions in the Middle East has cast fresh doubt over the stability of the recent peace deal, keeping businesses on tenterhooks. Oil prices are already back on the rise, fuelling energy costs and pushing up input prices once again.

“At the same time, the Bank of England has made clear that oil-driven inflation remains a key risk, warning that interest rates may need to rise later this year. That raises the prospect of tighter financing conditions at a time when many businesses are already facing a challenging cost environment.”