The UK economy unexpectedly grew in May, indicating that the resilience of consumers and businesses has been stronger than anticipated in the face of political turbulence and rising energy costs.

The Office for National Statistics reported on Thursday that Gross Domestic Product increased by 0.1% in May, following a 0.1% decline in April. Economists had previously forecast the figure would remain flat.

Buoyed by strong performance in the scientific research and development sector within healthcare and in retail, the services sector expanded by 0.3% month-on-month in May, with warm weather encouraging consumer shopping activity.

Concurrently, the construction sector contracted by 0.8%, and industrial production fell by 0.5%, as a slight increase in manufacturing was offset by a decline in energy and utilities output.

This represents a mild improvement for the overall economy, which finds itself caught between political upheaval and an energy crisis.

Following a significant defeat in local elections in May, Keir Starmer's position became increasingly untenable, leading the British public to consider the possibility of another change in prime minister. Meanwhile, ongoing conflict in the Middle East continues to push oil prices higher, weighing on market sentiment.

Economic activity is likely to remain subdued in the coming months. The collapse of a US-Iran ceasefire agreement and a new wave of attacks have once again driven up oil prices, sparking concerns about heightened inflation and a slowdown in economic growth.

"The UK economy returned to growth in May, but renewed energy price pressures are clouding the outlook," said Yael Selfin, Chief Economist at KPMG.

The Office for National Statistics noted that consumer-facing services grew by 0.5% in May, primarily driven by a 1.2% rise in retail sales and growth in the sports, entertainment, and recreation industries.

Promotional activities and warm weather contributed to the increase in retail sales. Stabilization in the labor market has also eased fears about unemployment and may help support consumer spending.

Ahead of the next interest rate decision on July 30th, policymakers at the Bank of England face a difficult balancing act. While the energy crisis linked to Iran could keep inflation above the Bank's 2% target for a longer period, economic activity remains weak.

The Organisation for Economic Co-operation and Development warned in a recent report that Burnham, poised to replace Starmer as Prime Minister on Monday, will inherit an economy facing "significant challenges."

Economists anticipate that economic growth will slow in the second quarter of this year, following the fastest start among G7 nations in early 2026. Nevertheless, economic performance remains better than the Bank of England's expectations.

"We expect interest rates to remain on hold for an extended period, but robust growth is a reason why the next move is more likely to be a hike than a cut," said Rob Wood, Chief UK Economist at Pantheon.