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Financial News: UK Economy Recovers Slowly In May

UK Economy Recovers Slowly In May

07/14/2020 - 08:31:00 (RTTNews)

(RTTNews) - Despite easing of coronavirus containment measures, the UK economy recovered at a much slower than expected pace in May after contracting the most on record in April, data from the Office for National Statistics showed Tuesday.

Gross domestic product grew 1.8 percent in May from April, when the economy shrunk a record 20.3 percent. However, this was weaker than the expected growth of 5.5 percent.

The national output was still 24.5 percent smaller than in February, before the coronavirus pandemic hit the economy.

Jonathan Athow, Deputy National Statistician for Economic Statistics, said, "Manufacturing and house building showed signs of recovery as some businesses saw staff return to work."

"Despite this, the economy was still a quarter smaller in May than in February, before the full effects of the pandemic struck," Athow added.

In the three months to May, the economy shrank 19.1 percent, following a 10.8 percent fall in April.

The 1.8 percent rise in GDP in May was a disappointing first step on the road to recovery and suggests that hopes of a rapid rebound from the lockdown are wide of the mark, Tom Pugh, an economist at Capital Economics, said.

Indeed, the path to full economic recovery will probably be much longer than most people anticipate.

Despite the reopening of construction and manufacturing, the May GDP figures were underwhelming to say the least, James Smith, an ING economist said. "Admittedly this is 'old news' now, and we should see a sharper rebound in June and July," the economist said. But it does serve as a reminder that economic recovery from Covid-19 is going to be very protracted.

The dominant service sector grew 0.9 percent after contracting 18.9 percent. The largest positive contributor to the increase was the wholesale, retail and repair of motor vehicles.

Industrial production logged a notable growth of 6 percent, following a 20.2 percent fall. At the same time, manufacturing was up 8.4 percent versus a 24.4 percent drop in the previous month.

Nonetheless, industrial output was 19.1 percent lower than the pre Covid-19 level in February.

Driven by new housing, construction expanded 8.2 percent, in contrast to a record 40.2 percent decrease a month ago. Meanwhile, farm output fell at a faster pace of 6.2 percent, following April's 5.4 percent drop.

Another report from ONS showed that the visible trade deficit narrowed to GBP 2.81 billion from GBP 4.8 billion in April. Exports of goods grew 6.6 percent, while imports fell 1.7 percent.

The surplus on trade in services was largely unchanged at GBP 7.1 billion. Consequently, the total trade surplus surged to GBP 4.3 billion from GBP 2.3 billion in April.

In a separate communiqué, the Office for Budget Responsibility said the UK is on track to record the largest decline in annual GDP for 300 years, with output falling by more than 10 percent in 2020 in all three scenarios.

In the central scenario, the economy is projected to shrink 12.4 percent this year and to grow 8.7 percent in 2021 and 4.5 percent in 2022.

According to the central scenario, the budget deficit is forecast to rise to GBP 322 billion or 16 percent of GDP in 2020-21, which will be the highest peacetime level in at least 300 years.

The OBR said the budget deficit roughly halves in 2021-22, then shrinks more slowly thereafter.

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