Yahoo Finance UK economy grows by ‘disappointing’ 1.8% in May in blow to rapid recovery hopes
Hopes of a sharp V-shaped recovery in the UK economy have been dealt a blow after official figures revealed meagre growth of 1.8% in May as lockdown restrictions began to ease.
Experts said the month-on-month growth in May was “disappointing”, with the rebound far less than the near-6% expected and only clawing back a fraction of the record falls seen in March and April.
The data from the Office for National Statistics (ONS) showed output remained a quarter below its pre-pandemic levels – down 24.5% when compared with February.
Gross domestic product (GDP) also tumbled by nearly a fifth – down 19.1% – in the three months to May, according to the ONS.
May’s worse-than-expected data has raised concerns the recovery will be slower and more drawn out, once again suggesting the V-shaped rebound may not come to pass.
Economist Philip Shaw, at Investec, said the growth in May suggests the economy “will almost certainly have imploded over the second quarter as a whole”.
He is now forecasting a 19.7% contraction between April and June, but added the “disappointing” May figures should be followed by stronger data in June and July.
Mr Shaw added: “We would still characterise the recovery trajectory as a ‘lopsided V’.
“Nonetheless the risks are clearly tilted towards a flatter rebound, especially towards the end of the year.”
The ONS said the economy eked out growth as manufacturing and house building showed signs of recovery after restrictions began to be lifted in May.
Despite the month-on-month increase in GDP, output is still a long way from recovering from the record falls seen in March and April, when the economy plunged by a downwardly revised 6.9% and 20.3% respectively.
The data showed the all-important services sector grew by 0.9% in May, while manufacturing rose 8.4% and construction by 8.2% as factories and building sites started to get back on stream.
But the three-month figures reveal the toll taken over the height of the lockdown, with output in the services sector – which accounts for three-quarters of UK GDP – still 24.4% below February levels seen before the pandemic, with much of the retail sector still mothballed in May.
Jonathan Athow, deputy national statistician at the ONS, said of the May economy figures: “In the important services sector we saw some pick-up in retail, which saw record online sales.
“However, with lockdown restrictions remaining in place, many other services remained in the doldrums, with a number of areas seeing further declines.”
Non-essential shops were only allowed to reopen in mid-June across England, while pubs and restaurants remained shut until early July.
The figures also showed manufacturing activity in May was 22.3% lower than in February and construction a mammoth 38.8% behind.
Experts believe June and July’s GDP data should show a bigger bounce back.
Samuel Tombs, at Pantheon Macroeconomics, cautioned: “With surveys showing that households remain very fearful of contracting the virus, social distancing rules likely to limit the consumption of services until the population is vaccinated and employers set to lay off many furloughed workers in the autumn, we think that GDP still will be about 5% below its pre-Covid level by the end of this year.”
