The construction industry, alongside a surprising performance from the retail sector, has led to growth in the UK economy in May 2024, according to the Office for National Statistics (ONS).
UK businesses can breathe something of a sigh of relief following the Office for National Statistics’ (ONS) announcement in July. Financial experts and economic forecasters hadn’t predicted any growth for the economy in May 2024, expecting zero growth following the statistics released for April 2024, which saw a stagnant economic performance.
The growth is small, at only 0.4%, but is an encouraging sign for SME and new business owners, who are particularly affected by zero growth economies.
Growth in an economy refers to the expansion of economic activity. Where zero growth is seen within a major economy, this generally means that businesses aren’t confident in new business success, and thus fail to expand their business offerings, services, and products, and for would-be new business owners, this means delaying the start date for their new business.
Of course, seeing growth for May 2024 is an encouraging sign, and there is a general consensus in UK economics that growth leads to growth (unless interrupted by a major event). General elections are an example of such an event, and as we all know, Sir Keir Starmer took over as Prime Minister on the 4th July 2024. Whether this has an impact on economic growth, for good or for bad, will only be evident when the ONS releases statistics for the period, expected around September for the first glimpse of how the new government has affected economic growth.
The ONS revealed that strong performances in the construction and retail industries were largely responsible for the unexpected economic growth. The retail industry covers things like shops, bars, and restaurants and grew by 0.3% compared to April. The construction industry, on the other hand, grew by 1.9%.
Whilst this is good news for new and developing businesses in these sectors, it also directly impacts businesses more widely. Whilst experts never place too much emphasis on a one month period, the Bank of England will meet on 1 August 2024 to discuss the possibilities of reducing interest rates which currently sit at 5.25% – a 16 year high in the UK. A strong economic growth performance will lead to a reduction in interest rates – but only if the trend continues.
As it stands, the UK economy from March-May grew overall by 0.9% compared to the previous 3 month period, a much more encouraging sign for business owners and the UK as a whole.
What happens next remains to be seen, but if the UK economy continues to grow then we can expect a more favourable environment for UK businesses – both new businesses starting out, and established businesses looking for a less harsh trading environment.
The UK Chancellor, Rachel Reeves, who took over as Chancellor on the 4th July 2024, responded to the latest growth figures by saying that economic growth was the government’s “national mission”, and “that is why this week I have already taken the urgent action necessary to fix the foundations of our economy”.
Whether that urgent action leads to economic growth for the future will only be revealed in time, but it is certainly an encouraging sign for UK businesses.
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