UK economy set to have stayed in slow lane after Iran war held back growth

Some economists are expecting GDP to have flatlined or declined in May, after slipping by 0.1% in April.

The most recent data showed a sharp pullback from growth of 0.3% in March and 0.4% in February, and marked the first contraction since August last year.

That decline was led by a fall in GDP for the services industry – the most dominant in the UK economy – and offsetting growth in the construction and manufacturing industries.

Surging fuel and energy costs were squeezing some businesses and households in April and remained elevated in May, although wholesale prices have come down in more recent weeks.

It prompted Chancellor Rachel Reeves to state that it was “not a war we wanted or joined, but one that will have an impact at home”.

Pantheon Macroeconomics said it was forecasting another weak performance for the services industry but a more mixed bag across the wider economy, with subsectors like energy supply boosted by higher oil prices.

Its analysts are expecting GDP to have shown no growth in May.

Deutsche Bank said it was expecting GDP to have declined by 0.1% in May in a more downbeat outlook for the economy.

Its chief UK economist Sanjay Raja predicted that services activity remained “sluggish” in May, including information, professional and financial services, and real estate.

However, Mr Raja said it was “not all bad news” for the economy, adding: “Anecdotally, retailers pointed to a combination of promotions and warmer weather boosting demand for items such as outdoor furniture and fans.”

Looking ahead, he also suggested that some sectors could get a boost this month as England has gone further in the Fifa World Cup and some pubs and bars have benefited from extended opening hours and busier periods.