The UK economy returned to growth in May, but official figures showed expansion was muted amid price pressures and supply chain issues due to the Iran war.
The Office for National Statistics (ONS) said gross domestic product rose (GDP) by 0.1% in May, following a 0.1% contraction in April.
The meagre growth in May came after expansion of 0.3% in the all-important services sector, which was partly offset by falls of 0.5% in production and 0.8% in construction, according to the ONS.
Growth has been pulling back sharply after a much better than expected start to the year, with the ONS recording growth of 0.3% in March before the contraction in April, which was the first fall for eight months in what was seen as a sign that the Iran war was beginning to take its toll.
In the three months to May, GDP rose 0.7% after upwardly revised growth of 0.8% in the three months to April.
The ONS said the Middle East conflict had been flagged by businesses across a raft of sectors for having impacted activity, including some manufacturing industries, hospitality firms, travel agencies and entertainment companies.
“A common theme of comments received by the monthly business survey was disruption in global supply chains because of the conflict in Iran,” according to the ONS.
Experts at Pantheon Macroeconomics said the May increase puts the economy on track for growth of 0.3% overall in the second quarter, down from growth of 0.6% in the first three months.
But nearly five months of conflict in the Middle East, and with the US-Iran peace deal having largely fallen apart, is set to see soaring fuel and energy costs impact growth over the year.
Fergus Jimenez-England, an associate economist at the National Institute of Economic and Social Research (Niesr), said the incoming Prime Minister will need to make economic stability a top priority.
He said: “Today’s data confirm that growth remains fragile, with both production and construction sectors falling, and services keeping the economy afloat.
“The growth outlook is further threatened by volatile energy costs which will likely dampen economic activity in the near future.
“As energy prices climb once more, all eyes are now on the new Prime Minister to deliver much-needed stability.”
A Treasury spokesperson said: “We have the right economic plan which has put the UK in a much stronger position than two years ago with the fastest growth in the G7 in the first quarter and the OECD (Organisation for Economic Co-operation and Development) agreeing that we have restored stability.”
Both the OECD and the International Monetary Fund recently said UK growth would be better than first feared in 2026, with upgrades to the outlook.
Pantheon economist Rob Wood said the resilience so far means interest rates are set for a “prolonged period” on hold, but added “solid growth is one reason that a hike is more likely than a cut”.
The Bank of England will next decide on rates on July 30, when it will also publish its latest quarterly forecasts on the economy.
