UK economy returns to growth in May, beating expectations as British pound hits four-month high

LONDON — The U.K. economy grew by 0.4% in May, flash figures published by the Office for National Statistics showed on Thursday, with the British pound jumping to a four-month high against the U.S. dollar after the announcement.

Gross domestic product came in above the 0.2% monthly expansion forecast by a Reuters poll of economists.

The British economy exited a shallow recession in the first quarter of the year, then flatlined in April.

The nation's dominant services sector showed continued growth of 0.3% in May, as output in both production and construction rebounded from losses, rising by 0.2% and 1.9%, respectively.

Sterling was 0.14% higher against the U.S. dollar at $1.2863 by 8:30 a.m. in London — the highest level for the British currency since March 8, 2024, according to LSEG data.

The broad-based recovery will be welcomed by the newly-elected Labour Party, as Prime Minister Keir Starmer undertakes his first week on the job.

Goldman Sachs last week upgraded its growth forecast for the U.K. following left-of-center Labour's thumping victory in the country's general election. The party campaigned on a platform that centered on boosting economic growth, housing and planning.

The party's large parliamentary majority and business-friendly messaging have led analysts to describe the government as generally supportive of U.K. assets.

In a note, Ashley Webb, U.K. economist at Capital Economics, underlined the recent trend of British GDP increases in recent months — barring the lack of growth in April — "which supports the idea that the dual drags on activity from higher interest rates and higher inflation are starting to fade."

Price rises in the U.K. have cooled from a 41-year high of 11.1% in October 2022, all the way down to