King’s coronation weighs on economy as output contracts by 0.1% in May

The economy contracted in May as the additional public holiday for the King’s coronation weighed on output, according to official figures.

Data from the Office for National Statistics (ONS) showed negative growth of 0.1% during the month, better than economists had predicted but continuing the yo-yo pattern seen throughout the last year that has left gross domestic product flat on a quarterly basis.

The ONS said that while the extra bank holiday, on Monday 8 May, shuttered most normal business activity, the hospitality sector failed to capitalise.

No major sector of the economy was in growth.

Services, which account for 80% of UK output, flatlined.

ONS director for economic statistics, Darren Morgan, said of the performance: “GDP fell slightly as manufacturing, energy generation and construction all fell back with some industries impacted by one fewer working day than normal.

“Meanwhile, despite the coronation bank holiday, pubs and bars saw sales fall after a strong April. Employment agencies also saw another poor month.

“However, services were flat overall with health recovering, with less impact from strikes than in the previous month, and IT also had a strong month.

“Across the last three months as a whole the economy showed no growth.”

Inflation ‘a drag’ on output

The economy is back at risk of recession as the Bank of England bears down harder on stubborn inflation.

The government has said it would welcome that prospect if it meant the problem could be brought under control.

The pace of price rises has remained sticky in the UK due to elements of the energy-led cost of living crisis proving more drawn out than expected while the Bank has also pointed to so-called secondary effects.

These include a record pace for wage growth and a suggestion that companies are rebuilding profits by charging more than they should.

Rising interest rate expectations on the back of these effects is what has driven two-year fixed rate mortgage costs to 15-year highs this week.

The Bank’s latest analysis of the financial system’s health showed millions were at risk of paying an extra £500 per month on their mortgage by the end of 2026, with just shy of one million facing the prospect of bills above that sum.

Financial markets expect the Bank to impose a second 0.5 percentage point interest rate hike early next month despite inflation figures for June, out next week, being tipped by economists to show an easing in the consumer price index measure to 8% from 8.7%.

Chancellor Jeremy Hunt said of the latest growth data: “While an extra bank holiday had an impact on growth in May, high inflation remains a drag anchor on economic growth.

“The best way to get growth going again and ease the pressure on families is to bring inflation down as quickly as possible. Our plan will work, but we must stick to it.”

His Labour shadow, Rachel Reeves, responded: “This Tory government seems determined to march us down a path of low growth and economic insecurity.

“There is no reason, given the hard work and the talent of the British people, that they shouldn’t be getting our economy growing.

“Instead, growth is down again, families are worse off and the impact of the Tory mortgage bombshell is reaching far and wide.

“Labour will restore financial and economic security and get our economy growing, so we can move forward into the opportunities of the future that Britain deserves.”