8 months ago • 2 mins
What’s going on here?
Data out on Thursday showed the unfazed British economy fared better than feared in May.
What does this mean?
The UK has been keeping economists on their toes lately – and it didn’t let them relax their strained feet in May either. See, even with a day off for royal festivities, it managed to outfox expectations, thanks to strong consumer spending and fewer strikes compared to the previous month. And sure, industrial production did take a 0.6% hit – but the downturns in manufacturing and construction weren’t as dramatic as expected. Plus, services stood firm, sidestepping the drop that economists had predicted. So when you put it all together, the UK’s economy shrank just 0.1% in May from April – a far cry from the feared 0.3% dip that had economists biting their nails.
Why should I care?
The bigger picture: Not out of the woods.
The British economy’s been teetering on a knife edge for a while now. Soaring prices and borrowing costs have been squeezing consumers and businesses, leaving the economy just 0.2% ahead of its pre-pandemic level in February 2020. And while June’s numbers are expected to look brighter – the month had no public holiday, after all – don’t be fooled by this temporary sunshine: the long-term forecast is overcast, and markets are predicting a rise in interest rates from 5% to 6.25% by year’s end to boot.
Zooming out: Slowpoke.
The Bank of England has a pretty compelling reason to keep nudging those rates upward. According to the OECD, the UK is the odd one out among G7 nations, as the only country still grappling with climbing inflation. And after a sizable rate hike last month, it looks like Brits are probably in for more hikes to come. That could mean the UK will keep marching to its own beat – while other major central banks have managed to slow or even completely pause their hiking.
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