UK Economic Growth Slows In May

Growth in the UK’s economy slowed by more than expected in May despite a rebound in the hospitality sector which was offset by disruptions to car production.

As coronavirus restrictions eased to allow pubs and restaurants to serve indoors, the economy grew by only 0.8pc in May. It was also a slowdown from the 2pc growth seen in April, although it was the fourth consecutive month of growth. The Office for National Statistics (ONS) said the economy is still 3.1pc below pre-pandemic levels.

Paul Dales, an economist with Capital Economics, said the pace of recovery was always going to slow as the economy climbed back towards its pre-crisis level, but he hadn’t expected it to slow by so much so soon.

Jonathan Athow, ONS deputy national statistician for economic statistics, said pubs and restaurants were responsible for the great majority of the growth seen in May, but hotels also saw a noticeable recovery as restrictions lifted.

The overall services sector grew by 0.9pc, with accommodation and food services expanding by a huge 37.1pc in May.

But UK carmakers were hit by a shortage of microchips, as the manufacture of transport equipment fell by 16.5pc. Construction firms also lost working days due to the very wet weather in May, although the ONS said the sector was up 0.3pc above the pre-pandemic level in February 2020.

Suren Thiru, Head of Economics at the British Chambers of Commerce, said although the latest figures confirm the rebound in economic activity continued into May, the sharp slowdown in growth indicates that the recovery is losing a little traction as the short-term boost from the earlier phases of reopening declines.

Economy same size as in January 2017

Overall, economic output rose by 3.6pc in the three months to May, spurred by strong retail sales and pubs, restaurants and schools reopening from March.

Chancellor Rishi Sunak said the Government is continuing to support the recovery with the furlough scheme in place until September and programmes such as Restart to help people who have sadly lost their jobs get back into work.

As for the future, Emma-Lou Montgomery, associate director at fund manager Fidelity International, said the sporting summer may not directly cause an ‘it’s coming home’ bounce, but the impact on consumer confidence cannot be underestimated.

That said, there are many factors that cannot be predicted. The UK is set on its roadmap to ‘Freedom Day’ but cases of Covid-19 infection are rising, there are ongoing challenges in the labour market, and the spending boom could slow in pace, she added.

The economy remains 3.1pc below the level in February 2020 and is the same size it was in January 2017, making it one of the two weakest performers in the G20 group of advanced economies.

UK exporting more goods to non-EU countries

In the UK, new gross domestic product (GDP) figures are produced every month, but the quarterly figures which cover three months at a time, are the most widely watched.

In a growing economy, quarterly GDP will be a little higher than the previous quarter, a sign that people are producing more work and becoming a little wealthier. Most economists, politicians and businesses want to see GDP rising steadily, because it means more jobs are likely to be created and workers will receive better pay rises.

But if GDP falls, it means the economy is shrinking, which is bad news for businesses and workers. If GDP falls for two quarters in succession, it is officially known as a recession, which can mean pay freezes and lost jobs.

A separate statement from the ONS on trade figures showed that following Brexit the UK is still importing more goods from outside the EU than from the bloc, although the difference is narrowing.

The ONS said imports from non-EU countries were worth £20bn in May, while imports from the EU, many of which face new barriers to cross-border trade, were valued at £18.4bn.

The value of goods exported to non-EU countries, at £13.7bn, was also higher than to EU countries, at £12.9bn.

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