The UK economy returned to growth in May, expanding by 0.1 percent after contracting last month, giving Andy Burnham a small economic cushion as he prepares to enter Downing Street next week.
The monthly figure, published by the Office for National Statistics, was in line with City forecasts. In the most reliable three-month estimate, gross domestic product rose 0.7 percent, ahead of estimates of 0.5 percent but down from 0.8 percent in the previous three months. The economy grew by 0.3 percent in March.
For small business owners, the details are more important than the title. The current growth is generated almost entirely by services, the sector in which most of Britain’s SMEs operate. Services output rose 0.3 percent in May, rebounding from a 0.1 percent decline in April, with information and communications technology, science and research, and professional services among the best performers.
The picture elsewhere is blurry. Output in manufacturing contracted by 0.5 per cent in May and construction fell by 0.8 per cent, said Liz McKeown, director of economic statistics at the ONS. For builders, manufacturers and the supply chains small firms depend on, the second quarter offered little comfort.
The timing is not good for the next prime minister. The economy did well at the start of the year, registering a quarterly growth of 0.6 percent, but has slowed sharply since then, hit by rising energy prices that have already increased costs for firms across the country. As we report inflation in March to 3.3 percent, fuel and energy bills are squeezing SME margins in ways that are hard to hedge and hard to pass on.
Forecasters expect annual GDP to grow in the 0.9 to 1.1 percent range this year, down from 1.4 percent last year. That is the area where Burnham, who has signed a “movement zone” on the tax and promised to cut business rates on bars and high street establishments, will have to make his calculations.
Ben Caswell, a senior economist at the National Institute for Economic and Social Research, said “the weakness of growth [will] proceed to the third stage”.
He added: “With fluctuating energy prices, high inflation, and weak public finances, the new Prime Minister inherits a booming economy and will have just under three years to fix a difficult economic situation.”
That word, stagflationary, will strike a chord with eight out of ten SME owners who have told researchers they fear what Prime Minister Burnham means for their business. A sluggish economy and rising inflation leave little room for the tax hikes his critics expect, or the spending spree his supporters want.
For now, the message for business owners is one of cautious pragmatism. Growth is back, but only just, and it’s services companies that are picking up the most. Whether the new government eases their burden or adds to it will be clear soon. The autumn budget seems a long way off, and very close indeed.
