UK economy registers sluggish rebound in May as output shrinks in quarter

The economy posted a 1.8% increase in May, but shrank 19.1% in the quarter

Most sectors of the UK economy took a hit during the three months ending May 31, with the services index, which accounts for 15% of the UK economy contracting 19% as a result of restrictions imposed to curb the spread of Covid-19. EPA
Most sectors of the UK economy took a hit during the three months ending May 31, with the services index, which accounts for 15% of the UK economy contracting 19% as a result of restrictions imposed to curb the spread of Covid-19. EPA

The UK’s economy grew by 1.8 per cent in May, but it faces a long road to recovery. In the three months to May, the economy shrank 19.1 per cent compared with the previous three-month period, according to government data.

The data “captures the direct effects of the coronavirus pandemic and the government measures taken to reduce transmission of the virus”, the Office for National Statistics said, with movement restrictions in the UK first imposed on March 23 and some measures being lifted towards the end of May.

Despite the signs of a recovery during the month, “the economy was still a quarter smaller in May than in February, before the full effects of the pandemic struck,” said Jonathan Athow, the ONS’s deputy national statistician for economic statistics.

The UK has suffered the third-highest number of deaths due to Covid-19 globally, with almost 45,000 fatalities and 291,000 cases recorded as of Tuesday, according to Johns Hopkins University, which is tracking the outbreak.

In its latest World Economic Outlook last month, the International Monetary Fund projects the UK economy to shrink 10.2 per cent for the whole of 2020, followed by an estimated expansion of 6.3 per cent next year.

“The economic numbers out of the UK were very disappointing, and the fact is that things are likely to remain this way because of the possibility of [a] second coronavirus wave,” said Naeem Aslam, chief markets analyst at foreign exchange brokerage Avatrade.

Almost all sectors of the economy reported declines in activity during the three months to May. Construction plunged 30 per cent, production contracted 15.5 per cent, agriculture shrank 6.3 per cent and the services sector index, which includes transport, accommodation and food, plunged 19 per cent. The services index accounts for 15 per cent of the entire UK economy.

Activity picked up in May because of a recovery in retail, “which saw record online sales”, Mr Athow said.

The pound was trading 0.33 per cent lower against the US dollar at $1.2514 by 2.03pm UAE time on Tuesday.

The 1.8 per cent increase in May was "well under the 5 per cent expected", according to Jasper Lawler, head of research at London Capital Group.

"It shows an economy that is bottom-skimming after a collapse. In the context of a 20 per cent decline, a rebound of 1.8 per cent is barely a rebound," he said.

He added, however, that many restrictions remained in place throughout May and that he expected June data to show a stronger recovery.

Updated: July 14, 2020 04:27 PM

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