UK GDP Contracts Again in May, Raising BoE Rate Cut Expectations

UK GDP Contracts Again in May, Raising BoE Rate Cut Expectations

Published: July 11, 2025
Category: UK | Macroeconomics | Central Banks

UK Economy Misses Forecasts for Second Straight Month

The UK Gross Domestic Product (GDP) declined again in May, missing expectations and recording a second consecutive monthly drop. This further confirms the Bank of England’s (BoE) assessment that underlying growth has stalled, following earlier artificial boosts from frontloaded tariffs and pre-Stamp Duty housing activity in Q1.

BoE’s View: Q1 Surge Was Misleading

According to market analysts, the weak May reading aligns with the BoE’s position that Q1’s economic strength was overstated.

“UK May GDP was worse than forecast, recording a second consecutive fall short of consensus expectations of a small rise,” analysts note. “The BoE looked through the Q1 GDP surge, instead concluding that underlying activity was basically flat.”

This reinforces concerns that the UK economy is struggling to regain traction, and adds pressure on the BoE to consider rate cuts sooner than previously anticipated.

Markets Await Labour Data for Confirmation

The labour market report due Thursday is now seen as a pivotal release. A disappointing jobs print could push the BoE toward a more dovish stance.

“If the labour data is poor, it would put serious pressure on the BoE to act sooner on rate reductions.”

Despite today’s disappointing data, Sterling (GBP) remains steady, indicating that traders are holding their breath until the employment figures are released next week.

Key Takeaways:

• UK GDP fell again in May, missing expectations for the second month in a row
• The data confirms BoE’s view of flatline economic growth
• Sterling remains unchanged, but pressure builds for monetary easing
• Thursday’s labour market report could be decisive for BoE rate policy

Related Tredu Reads:

• EUR/GBP Holds Above 0.8600 as UK Economy Slows
• BoE Caught Between Stagnant Growth and Sticky Inflation
• Global Risk Aversion Boosts Safe-Haven Assets