Andy Burnham’s new Chancellor will inherit a slow-moving economy with forecasters downgrading their expectations for the remainder of the year.
Annual GDP is now predicted to expand in the range of 0.9% to 1.1%, down from 1.4% last year as the war in Iran resumes and businesses continue to be hit by high energy costs and supply disruption.
Stimulating growth will be the task of the new occupant of number 11 Downing Street, with “live discussions” said to be taking place over installing Home Secretary Shabana Mahmood in the post.
She has risen above Energy secretary Ed Miliband whose left wing credentials are not favoured by the markets, nor by a growing number of Labour MPs.
The speculation comes amid new Office for National Statistics figures that show the economy outperformed at the start of the year, registering quarterly growth of 0.6% but has slowed in the second quarter.
GDP grew by 0.1% in May despite the Iran war but experts warn that, while the rise is “encouraging”, the UK is still a “stagnant economy”.
The growth in May was because of a rise of 0.3% in services and was partially offset by falls of 0.5% in production, and 0.8% in construction.
The largest positive contribution to services sector output in May 2026 came from professional, scientific and technical activities, which grew by 1.8%. This was driven by a growth of 5.1% in scientific research and development, reaching its highest peak since June 2025.
But production output fell by 0.5% in May 2026, driven by falls in mining and quarrying (down 4.6%), water supply (down 2.4%) and electricity, gas, steam and air conditioning supply (down 0.1%).
Construction output decreased by 0.8% in May 2026, driven by a decrease in repair and maintenance, which fell by 2.1%.
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