The Office for National Statistics said Gross Domestic Product (GDP) rose 0.5% month-on-month, following a revised 0.2% drop in April. City economists had expected zero growth amid fears of the fallout from the cost of living crisis. Despite an overall uptick in activity in the month, the latest snapshot revealed a drop in consumer-facing services due to a drop in retail sales and a drop in sports and leisure activities. Industrial production rose 0.9% month-on-month on strength in the manufacturing sector, while the construction sector rose 1.5%, helped by a pick-up in homebuilding activity and office renovation work. The ONS said health was the biggest driver as more people saw GPs, offsetting the scrapping of coronavirus testing and screening and vaccination programmes. It said road hauliers also had a busy month, while travel agents and tour operators benefited from a surge in bookings amid subdued demand for summer holidays. The figures come as airports grapple with rising demand for overseas travel as holidaymakers return to overseas flights after the easing of pandemic restrictions, with scenes of long delays and cancellations across the country. Analysts said the stronger monthly GDP figures could tempt the Bank of England to raise interest rates by 0.5 percentage points at its next monetary policy committee meeting in August, as the central bank responds to inflation hitting record highs levels since 1982. Consumer services fell 0.1% on the month, with households hit by rising living costs. However, this held up better than a 0.8% fall in April, mainly due to an 11% month-on-month rise in holiday bookings. Kitty Ussher, chief economist at the Institute of Directors, said the latest figures were reassuring for business leaders. “While many people are no doubt feeling the pressure on household bills, the much-publicised weakness in retail sales is also partly offset by consumers returning to spending in the separate tourism travel category. “Overall, there is nothing in this data to prevent the Bank of England from continuing to raise interest rates when it meets in the summer.” However, there are concerns that the cost of living crisis could force consumers to cut back on spending in the coming months amid a fresh rise in household energy bills. Economists also expect activity to fall sharply in June due to the impact of the extra bank holiday for the Queen’s platinum jubilee, which is likely to lead to a contraction in second-quarter GDP. If the economy shrank again in the third quarter, that would meet the technical definition of a recession. Paul Dales, chief UK economist at consultancy Capital Economics, said: “With real household disposable income expected to fall further in the third quarter, recession remains a real risk. That could mean the economy turns out to be a poisoned chalice for whoever wins the race to be the next prime minister.” Subscribe to the Business Today daily email or follow Guardian Business on Twitter @BusinessDesk Business leaders said the economy still faces major structural issues, including Brexit uncertainty, China’s ongoing Covid lockdowns and supply chain issues, as well as rising energy costs. Rachel Reeves, the shadow chancellor, said living standards had fallen and real wages were not rising. “Instead of putting forward the plans we need for a stronger, more secure economy, the Tories are spending every minute indulging in unfunded fantasy economics,” he said. Nadhim Zahawi, the chancellor and one of the contenders to replace Boris Johnson, said: “It’s always great to see the economy growing, but I’m not complacent. I know people are concerned, so we’re continuing to support families and economic growth.”
