Confused picture doesn’t help banks as economy shrinks modestly in May

Nicholas Hyett, Investment Manager, Wealth Club:

“May’s GDP numbers paint a confused picture of the state of the economy.

While the economy shrank modestly in May, that could be down to the extra bank holiday for the Coronation as well as industrial action across the health, rail and education sectors. If true that would suggest the underlying picture is of an economy that remains strong, despite the Bank of England’s attempts to cool activity with higher interest rates.

Longer term though, there are signs the economy could be running out of gas. The housing market seems to be slowing, with less construction activity in housebuilding, and recruitment is seeing weakness too – potential canaries in the coal mine that suggest the economy has reached a turning point and is sliding from growth to contraction.

We suspect the Bank will take no chances and continue to hike rates, but the job of balancing inflation and economic growth isn’t getting any easier.”