Press release

13 Jul 2023 London, GB

Bank holiday impact on GDP much smaller than expected – EY ITEM Club comments

May's extra bank holiday caused a much smaller fall in GDP than two similar instances in 2022. This was partly due to public sector output rebounding because there was less industrial action than in April. But while evidence of greater resilience was encouraging in terms of the near-term outlook for activity, it raises the odds of the Bank of England increasing interest rates again in August.

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James White

Senior Executive, Media Relations, Ernst & Young LLP

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  • May's extra bank holiday caused a much smaller fall in GDP than two similar instances in 2022. This was partly due to public sector output rebounding because there was less industrial action than in April. But while evidence of greater resilience was encouraging in terms of the near-term outlook for activity, it raises the odds of the Bank of England increasing interest rates again in August.
  • The economy will now likely escape a contraction in Q2, while Q3 could see decent growth, particularly if the Government can agree a pay deal to end public sector strikes. But the outlook further out is more uncertain, particularly given the economy is entering a period when the impact of previous rate rises is likely to be at its greatest.
  • EY ITEM Club Summer Forecast out on 24 July

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “GDP fell by 0.1% month-on-month in May, as the extra bank holiday for the coronation weighed on activity. However, May's month-on-month fall in GDP was much smaller than falls of 0.7% seen in both June and September 2022, months when there were also extra bank holidays. May’s relative resilience was partly a reflection of a rebound in public sector output, as industrial action was less widespread than in April. Elsewhere, the impact on output from the loss of a working day was smaller in most sectors than in June and September 2022, while some parts of leisure and hospitality saw a boost from the extra holiday.

“Output likely increased in June, given last month had a normal number of working days. And given the relatively muted impact of May's extra bank holiday, there's now a good chance that GDP grew in Q2. This is encouraging news in terms of the near-term performance of the economy. But the upside surprise from activity will add to the pressure on the Monetary Policy Committee (MPC) to increase rates when it meets next in August.

“The EY ITEM Club expects GDP will rebound in Q3. As well as the reversal of the modest bank holiday effect, business surveys point to rising activity in the private sector. If the Government can agree pay deals with trade unions to bring an end to the strikes, this could provide an additional boost. The outlook further out is more uncertain. Households' spending power remains under pressure from high inflation, while the peak impact of monetary policy tightening will soon be upon us. But the fading of last year’s energy price shock and an improving supply-side, reflecting strong workforce growth and a return to normality in supply chains, should keep the economy growing, if slowly.”