May’s GDP Growth Down on Expectations

The rate of growth across the UK economy slowed down in May and was below the expectations of leading economists.

GDP nationwide increased by around 0.8 per cent in May, with pubs and restaurants having been allowed to reopen after extended periods of closure due to coronavirus restrictions.

However, that pace represents a notable slowing down compared with the growth rate of 2 per cent recorded in April.

The latest figures show that the economy grew in each of the four months between the beginning of February and the end of May but overall GDP remains around 3.1 per cent below the levels of immediately prior to the onset of the Covid-19 pandemic.

Businesses in the hospitality sector are cited as being the main drivers of growth during May, with newly reopened hotels making a significant contribution to increases in activity during the month.

Across the accommodation and food services sectors, there was a remarkable 37.1 per cent growth rate recorded for May, while the services sector as a whole grew by almost 1 per cent.

Carmakers are among the companies known to have struggled in May, with issues around equipment supplies having contributed to a 16.5 per cent decline in their collective output.

Meanwhile, construction firms saw their activities curtailed to a notable extent by bad weather and lost working days, although the sector is now delivering higher levels of output than was the case prior to the pandemic.

In general, economists have bean encouraged to see the UK economy continuing to grow but disappointed by the relative slowness of the recovery.

“Of course, the pace of the recovery was always going to slow as the economy climbed back towards its pre-crisis level but we hadn’t expected it to slow so much so soon,” said Paul Dales from Capital Economics.

Some analysts have suggested that a summer of sport-induced fun and festivities might prove to have some positive knock-on effects for the economy once the data for June and July is collected.

“A sporting summer may not directly cause an ‘it’s coming home’ bounce, but the impact on consumer confidence can’t be ignored,” said Emma-Lou Montgomery from Fidelity International.

“That being said, there are many unknowns ahead,” she added. “The UK is set on its roadmap to ‘freedom day’ but cases are rising, challenges in the labour market persist and the initial spending boom could slow in pace.”