'Ticking tax timebomb' warning as UK economy shrinks 0.1% in May in fresh blow to Rachel Reeves
Gross Domestic Product fell 0.1% in May, following a 0.3% contraction in April. Analysts had forecast a 0.1% rise.
The latest economic decline was partly driven by a 'very weak month' for retail sales.
The latest figures released on Friday come as a blow to Chancellor Rachel Reeves, who is facing an increasingly difficult task balancing the books ahead of the autumn Budget.
'Thanks to Labour's reckless choices the economy actually shrank in May. This will pile even further pressure for tax rises in the Autumn,' said shadow Chancellor Sir Mel Stride.
'Labour's costly u-turns, on winter fuel and welfare, have created a ticking tax timebomb.'
Ms Reeves, who says she has made economic growth her No1 priority despite imposing a 'jobs tax' on companies with a hike in National Insurance contributions for employers, admitted the latest GDP figure was 'disappointing'.
She stressed: 'Getting more money in people's pockets is my number one mission.
'While today's figures are disappointing, I am determined to kickstart economic growth and deliver on that promise.'
Economists issued fresh warnings of that the Chancellor may be forced to hike taxes at the autumn Budget.
Hailey Low, Associate Economist at the National Institute of Economic and Social Research, explained: 'Today's growth figure of -0.1 per cent in May following April's contraction indicates that the UK's economic outlook remains fragile.
'Failure to implement the planned spending cuts has further eroded the UK's fiscal space and it's ability to respond to future shocks.
'Combined with depressed hiring intentions and strained public finances, growth prospects remain muted in the medium term.'
She added: 'With fiscal space increasingly constrained, the Chancellor faces hard trade-offs this autumn budget, having to raise taxes or cut spending to meet her self imposed rules.'
The May GDP fall comes after activity in the manufacturing sector dropped 1%, following a steep decline in April, having surged earlier in the year as US importers stocked up ahead of US President Donald Trump's tariff rises, which came into effect at the start of April.
ONS director of economic statistics Liz McKeown said: 'The economy contracted slightly in May with notable falls in production and construction, only partially offset by growth in services.
'However, across the latest three months as a whole, the economy still grew.
'This reflected strength earlier in the year that resulted, in part, from some activity being brought forward to February and March.'
She added: 'While services grew overall in May with a strong month for legal firms, which recovered from a weak April, and computer programming, these were partially offset by a very weak month for retail sales.'
Britain's economy had expanded rapidly in the first quarter of 2025, outstripping growth in other G7 countries. In May the Bank of England revised up its full-year growth forecast to 1%.
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