• UK GDP grew 0.1% in May, rebounding from a 0.1% contraction in April, the Office for National Statistics said.
  • The services sector, including strong retail sales, drove the growth, while industrial production and construction fell, ONS director Liz McKeown said.
  • Renewed U.S.-Iran hostilities around the Strait of Hormuz have pushed oil prices higher, raising energy costs and prompting investors to expect at least one interest-rate hike from the Bank of England this year.
  • Bank of England Governor Andrew Bailey said the UK economy has experienced low growth for 16-17 years and urged the incoming prime minister to prioritize growth.
  • The OECD projects UK growth of 0.9% in 2026 and 1.1% in 2027, down from 1.3% in 2025, citing productivity and fiscal discipline as key to raising living standards.

BOE Governor Cites 16 Years of Weak UK Growth

The U.K. economy returned to slight growth in May, expanding 0.1% after a 0.1% contraction in April, the Office for National Statistics said Thursday. The modest rebound was driven entirely by the services sector, including robust retail sales, with industrial production and construction both declining.

But the data arrive as a new wave of U.S. strikes on Iran this week threatens to push energy costs higher, further complicating the outlook for an economy that has struggled with sluggish growth for years. Investors, who had expected the Bank of England to cut its key interest rate this year before the conflict began, now anticipate at least one quarter-point hike from the current 3.75%.

Liz McKeown, director of economic statistics at the ONS, said the growth in GDP in May was driven by the services sector alone, including strong retail sales, with industrial production and construction both falling back.

The British economy outpaced the U.S. in the first quarter of the year, helped by improved manufacturing output, bumper retail sales and the unwinding of trade tensions as the economy adapted to global tariffs. But the closure of the Strait of Hormuz after the first U.S.-Israeli strikes on Iran in February has slowed activity. Oil prices surged, raising costs for consumers and businesses, and economists have lowered their forecasts for economic expansion this year.

While oil prices declined to prewar levels in June, fresh U.S. strikes on Iran this week signaled the fragility of any ceasefire in the region. Given the U.K.’s position as an energy importer, rising oil-and-gas prices would likely increase expectations for higher interest rates ahead, The Wall Street Journal reported.

The Iran conflict is having real-world consequences for U.K. firms, said Stuart Morrison, research manager at the British Chambers of Commerce. Rising energy prices and shipping disruption are increasing costs and creating uncertainty across the economy.

Bank of England Governor Andrew Bailey this week told lawmakers that the U.K. economy has been on a sluggish trajectory since the 2008 financial crisis, later hit also by the pandemic, the war in Ukraine and Britain’s exit from the European Union. “The big issue is growth in the economy…We’ve had low growth for the best part of 16, 17 years,” Bailey said.

Ahead of a change in political leadership set for this month, Bailey urged the next prime minister, Andy Burnham, to push for growth. “This is not a story about any one government… it’s not a political story in that sense. But it is a story about U.K. growth,” Bailey said.

The Organisation for Economic Co-operation and Development, in a report Wednesday, said productivity growth alongside fiscal discipline would be key to raising British living standards over the longer term. The OECD expects growth at 0.9% this year and 1.1% in 2027, down from 1.3% last year.