The UK economy expanded much slower than expected in May, underscoring the struggle to recover from the depth of the coronavirus slump.
The expansion of 1.8% fell short of the 5.5% pace expected and still leaves the economy almost 20% smaller in the latest three months. While activity has since picked up as lockdown restrictions eased, the UK, along with many other nations, remains a long way from approaching anything like a full recovery.
The figures will likely temper some of the optimism expressed by Bank of England policy makers about the pace of the rebound being better than initially anticipated. Stocks dropped and the yield on UK government bonds fell, a sign that usually means investors are seeking haven assets.
“There is still a large degree of uncertainty,” David Page, head of macroeconomics at AXA Investment Managers, told Bloomberg TV. “The service sector, where really we saw the delayed reopening because of the virus coming through, that’s where we’re seeing the weakest growth.”
According to the latest Bloomberg survey, the economy is set to shrink by almost 9% this year — the most in almost century — and few predict a rapid recovery, with output still likely to be lower at the end of next year than it was before the crisis struck.
With unemployment set to surge as government wage subsidies are withdrawn, Chancellor of the Exchequer Rishi Sunak last week announced a 30 billion pounds ($37.5 billion) stimulus package in an effort to revive confidence among consumers and businesses. The government now has return the country to a semblance of normality without triggering an economically devastating second wave of infections.
“Today’s figures underline the scale of the challenge we face,” Sunak said in a statement released by the Treasury. “I know people are worried about the security of their jobs and incomes.”
Output rose across the board in May, led by above 8% gains in both manufacturing and construction as some workers were allowed to return to work. But with much of the dominant services industry remaining subject to restrictions, the sector expanded just 0.9%.
Particularly hard hit was the arts, entertainment and recreation sector, which lost 11% following steep declines in previous two months. Industries including computer programming, house rentals and commercial property, and professional services such as legal work, accountancy and advertising also did less business. The slight pickup seen in GDP in May did little to reverse the damage over the previous two months, when the economy contracted an unprecedented 26%.
Garden centers reopened in May and some sporting activities were permitted, and estate agents began on-site viewings of properties. The economy received a further boost in June with the reopening of non-essential stores, while much of the hospitality industry resumed trading earlier this month.