Britain’s economy unexpectedly shrank in May, official figures show, in a blow for chancellor Rachel Reeves.

The Office for National Statistics said gross domestic product (GDP) fell by 0.1% in May, missing City predictions of a 0.1% monthly expansion.

The economy had contracted by 0.3% in April as businesses cut jobs and cancelled investment plans in response to higher taxes and uncertainty created by Donald Trump’s tariff war.

The latest figures come as Labour’s growth plans are under the microscope amid mounting speculation over the need for large tax rises at the autumn budget after Keir Starmer’s high-stakes welfare U-turn this month.

Ministers have warned of “financial consequences” after the government backtracked on changes to disability benefits that would have been worth more than £6bn in savings for the Treasury. That adds to the £1.25bn the Treasury needs to find to cover May’s climbdown on winter fuel payments.

Analysts have, however, warned that tax increases could weigh on growth by sapping household and business confidence.

The independent Office for Budget Responsibility has forecast GDP growth of 1% for 2025 as a whole but will revisit that projection in the run-up to the autumn budget.

While the UK has struck a deal with the US to mitigate Donald Trump’s steepest tariffs, alongside forging closer ties with the EU, the Bank of England governor, Andrew Bailey, has warned that trade policy uncertainty still clouds the outlook.

More details soon …