The UK economy has shrunk for two consecutive months! US tariffs and rising costs may lead to stagnation in the second quarter.

Data released by the UK National Statistics Office on Friday showed that the British economy has entered into contraction for the second consecutive month, due to the impact of US tariffs and multiple cost pressures. The Gross Domestic Product (GDP) for May decreased by 0.1% compared to the previous month, slightly narrowing from April's 0.3% contraction, but still significantly lower than the 0.1% growth forecasted by economists. This performance puts the UK at risk of overall stagnation in the second quarter, and if output falls by 0.4% or more in June, the economy for the quarter will see a significant deterioration from the 0.7% growth in the first quarter. Following the release of the data, the pound continued to decline against the dollar, falling by 0.3% to $1.3545. The Conservative government is facing dual pressures: on one hand, it needs to support fiscal spending goals through economic growth, and on the other hand, recent policy reversals (such as cutting welfare spending and reversing the decision on winter fuel subsidies for pensioners) have worsened the fiscal situation. Chancellor Rachel Reeves stated in a declaration that the data is "disappointing" and emphasized the need to "drive economic growth." The manufacturing and construction sectors were the main drags, with output in May experiencing the largest decline in nearly 18 months. Analysts pointed out that this was directly related to the continued economic weakness from April, US tariff pressures, and rising household energy bills, property taxes, and other costs. Despite the government's efforts to reach a trade agreement with the Trump administration, UK exports to the US have not recovered from the 2 billion drop in April, only rebounding by 300 million in May. The service sector also showed weak performance, with growth of only 0.1% in the month. Retail sales plummeted, and Bank of England Governor Andrew Bailey warned that businesses are delaying investments due to uncertainty. The 0.7% growth in the first quarter was mainly due to exporters accelerating production before the US tariffs took effect, and homebuyers completing transactions earlier to avoid the raised stamp duty on April 1, driving growth in legal and real estate intermediary services. The economic environment in the second quarter has significantly worsened: in addition to trade disruptions, employers also have to bear an additional 26 billion in wage taxes, as well as increases in regulated prices such as railway ticket fares and water bills, along with higher stamp duty for housing. Since the budget announcement in October last year, over 250,000 jobs have been cut by companies in response to the significant increase in minimum wage. With inflation pressures easing, the currency market expects the Bank of England to start cutting interest rates in August, with another cut before the end of the year and further policy easing in 2026. Jeremy Bartstonkar, European strategist at Raymond James Investment Services, pointed out: "The data for May confirms that the growth in the first quarter was a one-off event, essentially economic activity being released in concentration before the 'D-day' of US tariffs taking effect." This analysis highlights the vulnerability of the UK economy to policy fluctuations and external shocks.