London (Reuters) -Official data shows that the British economy grew unexpectedly in May. This was due to more people going to the doctor and taking vacations, which could make the Bank of England feel better about its plans to keep raising interest rates.
According to the Office of National Statistics, economic output increased by 0.5% in May, according to the
Reuters polled economists and found that the rate of economic growth was the same in May as it was in April.
The ONS says that health services were a big reason for growth, citing “a significant rise in GP appointments.”
The ONS also reported that road hauliers had a busy month, while travel companies did well due to pent-up demand for vacations.
In the three months leading up to May, GDP increased by 0.4%, compared to a Reuters poll prediction of 0% growth.
The Bank of England had predicted that the economy would decrease between April and June, but Wednesday’s numbers indicate that this may no longer be the case.
Analysts at RBC Capital Markets remarked, “It won’t take much for Q2 growth to be positive for the quarter overall.”
Other experts thought that May’s improvement was just a blip, since many European countries are struggling to keep inflation down because of rising energy prices.
“It is too early to pop the champagne corks, as the release’s specifics still speak to an economy under pressure as the cost-of-living problem squeezes households’ spending power,” analyst Dean Turner from UBS said.
The new British finance minister, Nadhim Zahawi, was happy to see signs of an improving economy but warned against getting too comfortable.
“We’re collaborating with the Bank of England to curb inflation, and I’m optimistic that we can build a better economy for everyone in the United Kingdom,” he said in a statement.
Even though there are worries that Britain might go into a recession later this year, the BoE is likely to raise interest rates on August 4 for the sixth time since December. For investors, the biggest question is how much the rates will go up.
Sterling gained after Wednesday’s data.
The majority of candidates to replace Boris Johnson as prime minister, including Zahawi, have pledged to lower taxes to stimulate economic growth. Former finance minister Rishi Sunak, who is also running for president, has stated that he wishes to address inflation first.
The ONS changed its estimate of GDP growth for April to show a 0.2% drop from the previous month. This is a smaller drop than what was thought before.
Consumer-facing services decreased by 0.1% in May compared to April, as inflation accelerated and workers faced an April tax rise. However, the decline was significantly less severe than April’s 2.2% decline.
The ONS said that when bank holidays are moved out of their usual months, like they were in May, data can be hard to predict, but they were confident that their adjustments caught the effects of the change.
(Based on a report by William Schomberg; edited by William James and Andrew Heavens)