UK Economy Shows Early Signs of Sectoral Recovery Amid Broader Slowdown

Despite a challenging economic backdrop, four key sectors of the UK economy demonstrated growth in May, offering tentative signs of resilience. According to Lloyds Bank’s latest UK Sector Tracker, software services, real estate, transportation, and food and drink manufacturing recorded increased output last month, even as the majority of industries continued to experience contraction.

Among these, software services and food and drink manufacturing stood out by also reporting a rise in new orders, an indicator of potential sustained momentum. Their performance contrasts sharply with widespread declines across other sectors, highlighting sector-specific strengths amid a generally subdued economic environment.

The wider UK economy remains under significant pressure. Official figures showed a 0.3% drop in GDP in April, the steepest monthly decline in 18 months and considerably worse than the 0.1% fall economists had forecast. Industries such as automotive manufacturing, metals and mining, chemicals, and healthcare were particularly affected, registering notable reductions in demand.

Inflationary pressures continue to weigh heavily on businesses, with the UK inflation rate reaching 3.4%, well above the Bank of England’s 2% target. Labour-intensive industries, particularly tourism and recreation, have been hit hard by input cost inflation and wage increases following changes to the National Living Wage and National Insurance thresholds.

Compounding domestic challenges, international trade barriers have also intensified. As of April, most UK-manufactured goods exported to the United States are subject to a 10% tariff, following new measures introduced by President Trump. While a recent trade agreement reduced tariffs on UK car exports from 25% to 10% up to a 100,000-vehicle quota this has provided only limited relief to exporters.

Nonetheless, Lloyds Bank’s senior UK economist, Nikesh Sawjani, suggested the data may point to an inflection point: “While most sectors still face weak demand and rising costs, the broader uptick in activity could suggest some early signs of renewed momentum.” Whether this momentum can be sustained will depend on the UK’s ability to navigate both domestic inflationary pressures and international trade headwinds in the months ahead.