Economy paints an uncertain picture as inflation and rising interest rates drag growth - Chamber

Inflation and rising interest rates continues to drag economic growth, business leaders said today.

The UK Gross Domestic Product (GDP) contracted in May by 0.1 per cent, after increasing by 0.2 per cent in April, according to the Office for National Statistics (ONS).

The contraction was driven by the extra bank holiday weekend for the royal coronation, meaning sectors like construction and finance lost a working day in the month.

The manufacturing and construction sectors fell in May as some industries were hit by there being one fewer working day than normal.

It comes as the cost of living and rising interest rates continue to put pressure on households and businesses.

Economists had been expecting the economy to shrink slightly more.

Director of external affairs Raj Kandola (pictured) said: “Although in line with many city forecasts, this morning 's GDP figures paint an uncertain picture as inflation and rising interest rates continue to act as a drag on economic growth.

“Early analysis from our latest Quarterly Business Report points to the underlying resilience that many firms continue to display as domestic activity picked up over the last three months, however, labour market challenges remain ingrained and cost pressures continue to dampen appetite for investment.

“All eyes will now turn to the Bank of England as the prospect of yet another interest rate rise looms large, however the associated impact for those firms with huge overheads and borrowing costs means long term growth projections are likely to remain subdued. ”