UK Economy Fares Better Than Expected In May

(RTTNews) - The UK economy shrunk less than expected in May despite an extra bank holiday and strikes, reducing the scope for a contraction in the second quarter.

Real gross domestic product decreased 0.1 percent on a monthly basis, reversing April's 0.2 percent growth, the Office for National Statistics reported Thursday. However, this was slower than economists' forecast for a 0.3 percent decline.

On a yearly basis, GDP fell 0.4 percent, in contrast to the 0.5 percent expansion in April.

In the three months to May, GDP showed no growth compared with the preceding period, while economists had forecast a 0.1 percent fall.

Capital Economics' economist Paul Dales said the marginal decline in GDP was not as bad as it looked as some of the fall was due to the extra bank holiday for the King's Coronation.

The economy is on track to grow around 0.1 percent in the second quarter, which would beat the Bank of England's forecast of nil growth, Dales added.

BoE's focus will be still very much on the inflation and wage numbers, ING economist James Smith said. Better-than-expected regular pay figure from the ONS bolsters the chance of a second 50 basis point hike, though much hinges on next week's inflation figures, the economist noted.

On the production-side, services output registered no change in June after an expansion of 0.3 percent, the ONS said. Industrial production logged a marked 0.6 percent decline following a fall of 0.2 percent.

Mining and quarrying was the only production sub-sector to see increased output in May, which was up 0.3 percent. Manufacturing output dropped 0.2 percent, which was bigger than prior month's 0.1 percent fall.

Construction output decreased 0.2 percent in volume terms. This was the third consecutive fall in the month-on-month series.

Another data from the ONS showed that the visible trade deficit widened to GBP 18.72 billion in May from GBP 14.64 billion in April.

The trade balance that combines both goods and services posted a deficit of GBP 6.6 billion compared to a shortfall of GBP 2.5 billion in the previous month.