According to flash figures released by the Office for National Statistics on Thursday, the U.K. economy expanded by 0.4% in May, surpassing expectations and prompting the British pound to reach a four-month high against the U.S. dollar.
The growth in gross domestic product exceeded the 0.2% forecast projected by economists in a Reuters poll. After emerging from a slight recession in the first quarter and experiencing stagnation in April, the U.K. economy showed positive signs of recovery.
In May, the services sector, a key component of the economy, continued to grow by 0.3%, while both production and construction sectors saw improvements with increases of 0.2% and 1.9% respectively.
The British pound rose by 0.14% against the U.S. dollar, reaching $1.2863 by 8:30 AM in London – the highest level seen since March 8, 2024. The Labour Party, under newly-elected Prime Minister Keir Starmer, is likely to view the robust economic recovery favorably, following the party’s recent electoral success.
Last week, Goldman Sachs upgraded its growth forecast for the U.K. in light of the Labour Party’s electoral victory and its focus on economic growth, housing, and planning initiatives.
Despite the positive outlook, the Bank of England remains cautious, citing elevated indicators of inflation persistence in the U.K. as it weighs the possibility of an interest rate cut. Markets are divided on the likelihood of a rate cut at the BOE’s upcoming August meeting.
