The UK economy shrank by 0.1% in May, following a sharper 0.3% fall in April, as declines in manufacturing and construction signalled a sharp loss of momentum after a strong first quarter. This second consecutive monthly contraction raises concerns over the health of the economy and complicates Chancellor Rachel Reeves' plans to revive growth and close a significant fiscal gap. Analysts suggest earlier Q1 strength was boosted by one-off factors, with little sign of a sustained recovery. The Bank of England may now be more inclined to cut interest rates in August from the current 4.25%, especially as inflation expectations have moderated. Markets reacted with a slight drop in sterling and increased bets on rate cuts, while GDP figures prompted fresh scrutiny over the government's autumn budget plans and tax policies. The FTSE 100 was largely flat but sensitive sectors such as housebuilders and consumer discretionary stocks saw modest gains on rate cut hopes.