GDP: What is it and how does it impact the cost of living?

Rachel Reeves has welcomed a growth in the British economy, with gross domestic product having risen 0.4 per cent in May, according to the latest Office for National Statistics data.

Although Labour was not in power for that month, it is still welcome news for the new chancellor in the first full week of her job.

The May growth came after no growth in April, according to the report published shortly before the general election.

Ms Reeves said: “Delivering economic growth is our national mission, and we don't have a minute to waste. That is why this week I have already taken the urgent action necessary to fix the foundations of our economy to rebuild Britain and make every part of Britain better off.

“A decade of national renewal has begun, and we are just getting started.”

Economists had predicted that GDP would increase by 0.2 per cent in May, so the pick-up is beating early estimates and predictions.

The services sector remained a key driver for economic growth across the UK, the ONS said, with its fifth consecutive monthly increase.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: "The UK economy is well and truly putting last year's minor recession behind it. GDP has risen 1.5 per cent so far this year, and three-month-on-three-month growth reached the highest since January 2022.

"But these growth numbers feel a bit too good to be true - they are much stronger than business surveys - so we assume some payback in June."

But, what exactly is GDP, when is the next announcement, and how does it impact spending and the cost of living?

Here’s everything you need to know.

What is Gross Domestic Product (GDP)?

GDP stands for gross domestic product and is a measure of the size and health of a country’s economy over a period of time (usually one quarter or one year). It is also used to compare the size of different economies at different points in time.

Goods are things such as a new washing machine, or milk that’s bought in the supermarket. Services include a haircut from a hairdresser or repairs to your home by your plumber.

However, explains that it’s only the final goods and services that are sold that matter for overall GDP.

For example, if tyres roll off a production line, and are sold to a car manufacturer, the value of the tyres isn’t included in GDP, it’s reflected in the value of the car.

The more you pay, or the market value of that good or service, is what’s important, as these amounts are added together, in order to get overall GDP.

When GDP goes up, the economy is growing, meaning people are spending more and businesses are expanding. For this reason, GDP growth, which is also called economic growth, or simply “growth” — is a key measure of the overall strength of an economy.

What is Labour going to do to boost the economy?

Ms Reeves has said that “a decade of national renewal has begun” and will be hoping this is the first of many pieces of good news heading her way.

The new government is banking on boosting economic growth to plough billions more into public services.

But leading economists have warned that if healthier growth does not materialise, the government may have to hike taxes further or cut some unprotected public services such as local government, or the prisons and justice system.

Ms Reeves will make her first big budget speech in the autumn statement this October.

Prior to the election, she said that voters can trust her with their money.

“In the three and a bit years that I have been shadow chancellor the number one thing that I’ve set out to do is to ensure that people can trust me and do feel that they can trust me with their money which is why everything in our manifesto is fully costed and fully funded,” she said.