- By Daniel Thomas
- Business Reporter, ` News
Jul 13, 2023 at 7:12 am BST
Updated 40 minutes ago
image source, Getty Images
The UK economy has barely grown since 2019 before the pandemic, with one economist describing it as “sluggish”.
It shrank 0.1% in May, partly due to the extra coronation holiday, which meant one less working day than normal.
The rising cost of living and higher interest rates are weighing on households and businesses.
When an economy shrinks, people can lose their jobs and it becomes harder to get wage increases that keep up with prices.
Inflation – the annual rate at which prices rise – is 8.7%.
The Bank of England has hiked interest rates to curb inflation. However, this negatively impacts the cost of borrowing for consumers and drives up mortgage and loan repayments by the millions.
Chancellor Jeremy Hunt said high inflation was weighing on the economy.
“The best way to restart growth and ease the pressure on families is to bring inflation down as soon as possible. Our plan will work, but we have to stick to it.”
The manufacturing, energy and construction sectors were said to have declined, as did pub and bar sales.
However, the healthcare sector recovered while the IT industry had a “strong month”. The impact of the strikes on the economy was also less than in April.
The coronation – which meant there were three public holidays in May instead of the usual two – caused a slowdown in some industries, the ONS said, but benefited others, such as those in the arts and entertainment sectors.
Economic growth is good for most people. This usually means there are more jobs and companies are more profitable and able to pay their employees and shareholders more.
The higher wages and larger profits in a growing economy also generate more tax money for the state.
It can choose to spend more on welfare, public services, and the wages of government employees, or to cut taxes.
When the economy contracts, these things can reverse themselves – but governments still usually have choices about public spending.
Capital Economics said the 0.1% drop in May “isn’t as bad as it looks, as part of it is due to the extra coronation holiday.”
It added that GDP – the official measure of the size of the economy – is expected to expand by around 0.1% in the three months to June.
“Our impression is that underlying activity is still growing, albeit at a snail’s pace,” said Paul Dales, UK’s chief economist.
But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, warned May’s numbers showed growth “remained listless”.
And Martin Beck, chief adviser at economic forecasting group EY Item Club, told ` Today that “the bigger picture is that the economy remains weak”.
“It hasn’t grown at all in the three months to May and in May the economy was only 0.2% larger than it was just before the Covid pandemic hit, so we’ve seen pretty much no growth since late 2019.”
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