Britain’s economy contracted for the second consecutive month in May, with a 0.1% decline following April’s 0.3% contraction. This unexpected blow raises questions about the government’s growth strategy and puts pressure on Chancellor Rachel Reeves. Manufacturing output fell by 1% in May, while construction activity dropped by 0.6%. The services sector grew by 0.1%, but it wasn’t enough to offset the overall economic weakness. The slowdown is attributed to external pressures like US President Trump’s tariff policies and the expiration of a temporary tax break for home purchases.

The disappointing economic data has led to speculation about a potential quarterly contraction and the need for tax increases in the next budget. Financial markets reacted swiftly to the news, with the pound weakening against the dollar and euro. The FTSE 100 index traded lower, while US markets posted gains. Expectations for an August interest rate cut by the Bank of England have increased. Government bond yields reflect the shifting economic outlook, indicating continued pressure on UK fiscal conditions.

The economic data highlights the challenges facing the UK economy in a complex global environment. Trade tensions, policy adjustments, and structural shifts present obstacles for policymakers. Experts warn that a further GDP decline in June could signal an overall quarterly contraction, posing a significant setback for the Labour government’s growth plans.

Read more at Investing.com: UK’s GDP Crash: A Warning Shot for the Global Economy?