The UK economy unexpectedly shrank by 0.1% in May, following a 0.3% decline in April, defying forecasts of modest growth and heightening concerns about a potential recession later this year.

While the services sector posted a marginal 0.1% increase—buoyed by IT and professional services—this was outweighed by sharper declines in key sectors. Notably for the property and mortgage industries, construction output fell by 0.6%, with repair and maintenance work particularly weak. Analysts point to recent changes in Stamp Duty Land Tax as a contributing factor to this slowdown.

Meanwhile, production output dropped 0.9%, driven by declines in manufacturing—especially in pharmaceuticals and motor vehicles—adding to the overall drag on growth.

Phoebus chief sales and marketing officer Richard Pike says: “Another monthly contraction in GDP highlights just how fragile the UK’s economic recovery remains. While not unexpected given the broader slowdown in activity, it reinforces the view that momentum is stalling across the board.

“For the Bank of England, this adds further weight to the case for a rate cut, potentially as soon as August. Inflation is gradually easing, giving policymakers more room to act. However, any move is likely to be carefully measured. The Bank’s Financial Policy Committee (FPC) said on Wednesday that geopolitical tensions and trade disputes continue to pose risks to UK financial stability. With that in mind, the Bank will remain mindful of inflation risks and the potential impact of quantitative tightening, particularly in such a fragile growth environment.”

Last month, Bank of England governor Andrew Bailey flagged that the UK economy was unlikely to grow this year.