Interest rate cut could be delayed as UK economy grows quicker than expected

However experts believe this could delay the Bank of England cutting the base interest rate next month.

The Office for National Statistics (ONS) said gross domestic product (GDP) increased by 0.4 per cent in May. It came after no growth was recorded in April when damp weather hit consumer spending.

Economists had predicted that GDP would increase by 0.2 per cent in May. Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “The UK economy is well and truly putting last year’s minor recession behind it.

“GDP has risen 1.5 per cent so far this year, and three-month-on-three-month growth reached the highest since January 2022.

“But these growth numbers feel a bit too good to be true – they are much stronger than business surveys – so we assume some payback in June.”

The stronger-than-expected performance in May puts the country’s economy on track to surpass the Bank of England’s projection of 0.5% growth for the second quarter, barring a notable decline in June.

It would represent an early boost for the new Government, which is looking for economic growth and thus higher tax revenues to help fund its spending plans.

Responding to yesterday’s figures, Chancellor Rachel Reeves said: “Delivering economic growth is our national mission, and we don’t have a minute to waste.

“There’s a lot more to do. But I’m determined to fulfil that number one mission of this incoming Labour Government to grow our economy and create good jobs right across the UK.”

The Leeds West and Pudsey MP also suggested that the public would “welcome” a cut in interest rates, following reports the latest growth figures had put that on a “knife edge”.

Economists have suggested that the data will garner attention from Bank of England rate-setters before their next vote on 1 August.

Interest rates currently sit at a 16-year-high of 5.25 per cent after members of the Bank of England’s nine-strong Monetary Policy Committee (MPC) held interest rates – which are used by banks to decide mortgage rates – for the past seven meetings.

The central bank has been widely predicted to launch its first cut since 2020 at the August meeting.

However, experts have suggested rate-setters could now be assessing whether the potential rate cut may be pushed back further.

Reeves said: “The Bank of England is rightly independent … but of course, I know that many people who have been struggling with higher mortgage rates after the Conservatives’ mini-budget just under two years ago would welcome some relief with lower mortgage costs.”