The UK economy shrank by 0.1% in May, following a 0.3% contraction in April, according to the latest Office for National Statistics (ONS) data. While Chancellor Rachel Reeves called the figures “disappointing,” economists now believe an August interest rate cut is highly probable as the Bank of England seeks to stimulate growth.
Key Economic Takeaways
📉 GDP Decline: Two consecutive months of contraction signal weakening economic momentum.
🏦 Rate Cut Odds Rise: Markets now price in a 70% chance of a cut in August (down from 5.25%).
🏠 Housing Market Holds Steady: Despite economic uncertainty, property demand remains resilient.
What’s Driving the Slowdown?
Trump’s Trade War Impact
US tariffs on UK exports have dampened trade volumes.
May’s export levels fell to three-year lows.
Post-Stamp Duty Slowdown
A Q1 housing boom (driven by pre-April stamp duty changes) has faded.
However, property supply and demand remain balanced, preventing a crash.
Industrial & Construction Weakness
Manufacturing and construction output dragged down May’s GDP.
Experts: August Rate Cut “Almost Certain”
With inflation easing and growth stalling, economists overwhelmingly expect the Bank of England (BoE) to cut rates at its 7 August meeting.
Key Analyst Predictions:
✅ Suren Thiru (ICAEW):
“Sluggish GDP makes an August cut inevitable, despite recent inflation volatility.”
✅ Rob Wood (Pantheon Macroeconomics):
“Disappointing GDP locks in high odds for an MPC cut next month.”
✅ Sanjay Raja (Deutsche Bank):
“A 25bps cut in August is almost certain, with more likely in Q4.”
✅ Ellie Henderson (Investec):
“Lower rates will support growth, but a looser labour market may limit upside.”
What This Means for You
Borrowers & Homebuyers
Mortgage rates are already falling, with lenders trimming fixed deals.
A BoE cut could push 5-year fixes below 4% (currently ~4.25%).
Savers
Savings rates will dip further—consider locking in top fixes now.
Investors
UK equities (especially homebuilders & banks) may rally on cheaper credit.
The Road Ahead
While the UK avoids a technical recession (two straight quarters of decline), the BoE faces pressure to act. All eyes are now on:
🗓️ 7 August MPC meeting – Will Mark Bailey cut rates?
📊 June inflation data – A further drop could seal the deal.
