Rishi Sunak: GDP figures show scale of challenge
Here’s the chancellor of the Exchequer, Rishi Sunak, on today’s GDP figures:
“Today’s figures underline the scale of the challenge we face. I know people are worried about the security of their jobs and incomes.
“That’s why I set out our Plan for Jobs last week, following the PM’s new deal for Britain, to protect, support and create jobs as we safely reopen our economy.”
“Our clear plan invests up to £30bn in significant and targeted support to put people’s livelihoods at the centre of our national renewal as we emerge through the other side of this crisis.”
James Smith, Research Director of the Resolution Foundation, says the recovery from the Covid-19 slump has begun.
But its strength will depend on two factors — how people behave, and if a Covid-19 vaccine is successfully developed.
“Today’s data tells us that the UK economy started to recover as lockdown restrictions were eased in May. But what would normally be seen as strong growth in May of 1.8 per cent mainly reflects the depth of the lockdown’s economic damage, rather than a swift or V-shaped recovery. The economy was still just three-quarters of the size it was as recently as February.
“While we should expect strong immediate bounce backs in many sectors, such as retail which grew by 12 per cent in May, what recovery we actually see from here will depend on how people respond to the easing of restrictions and, crucially, the course of the public health crisis. Ultimately, the UK economy is unlikely to return to close to its pre-covid economic path until a vaccine or treatment is found.”
Economists: No V-shaped recovery here!
City economists are disappointed that the UK didn’t grow faster in May.
Economist Rupert Seggins points out that the economy has still lost over 17 years of growth:
Jeremy Thomson-Cook, Chief Economist at Equals PLC, says it will take many months before ‘normality’ returns:
May’s run of GDP, industrial production and services sector activity confirms that it’s easier to fall down a lift shaft than walk up a flight of stairs and the ongoing economic recovery will need many more months before any vague sense of normality is restored.
There are few signs that the UK economy is close to anything resembling a v-shaped recovery although we expect that June’s data will be better than May’s which have shown little more than a false dawn.”
Keith Church of 4most Europe agrees:
Simon French of Panmure Gordon fears the economy has suffered ‘prolonged’ damage.
Services and industry shrank in last quarter
Over the last quarter, the services sector fell by 18.9% while production shrank by 15.5%, the ONS says.
That includes a 37.8% slump in education output due to school closures, and a 31.4% drop in health output following “reduced activity in elective operations and fewer accident and emergency visits”
Food and beverage service activities shrank by 69.3%, while the motor trade contracted by 71% (because car sales tumbled).
Manufacturing output fell 18.0% in March-May, with the manufacture of transport equipment slumping by 45.7% as many factories remained closed.
UK GDP: The key chart
Britain’s manufacturers drove growth in May, boosting their output by 8.4% as factories emerged from the lockdown.
The construction sector grew by 8.2% — having contracted by a whopping 40% in April.
But services companies disappointed – with growth of just 0.9% in May. That will worry the government, as the services sector is roughly three-quarters of the whole economy,
This chart has all the details – including that the UK economy has contracted by 24.5% since February. Truly astonishing.
Although the UK economy is growing again, it’s only taken the first small step towards repairing the damage of the last quarter – as this chart shows:
Introduction: UK economy grew 1.8% in May
Good morning. Britain’s economy has returned to growth for the first time since the Covid-19 pandemic forced the country to lock down.
But it’s still a quarter smaller than before the crisis began.
UK GDP rose by 1.8% in May, according to data just released by the latest estimate from the Office for National Statistics. That follows the record slump of 20.3% in April, and a 6.9% decline in March.
This suggests the gradual reopening of some UK businesses in mid-May helped the economy off the mat, as some factories resumed operations and construction workers picked up tools.
But this is rather weaker than hoped – City economists had forecast a 5.5% jump in growth for May.
And the scale of the economic damage in the last quarter is still immense.
Today’s data shows that the UK economy shrank by 19.1% in the March-May quarter. That’s horrendous loss of activity that is already leading to job losses and store closures.
Jonathan Athow, Deputy National Statistician for Economic Statistics, says:
“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.
In the important services sector, we saw some pickup in retail, which saw record online sales. However, with lockdown restrictions remaining in place, many other services remained in the doldrums, with a number of areas seeing further declines.”
More details and reaction to follow….
Also coming up today
Although today’s UK GDP figures are the main event in the City, we also get the latest US inflation data and a new reading of economic confidence in Germany.
European stock markets are expected to fall this morning, after a late selloff on Wall Street last night.
US traders were spooked by the news that California is ordering restaurants, bars, movie theaters and malls to close again, following a surge in new coronavirus cases.
Tech giants took a biffing before the closing bell. Tesla, which had soared 16% (!) in early trading to a record valuation of $321bn, ended down 3%.
- 7am BST: UK GDP report for May
- 10am BST: ZEW’s German economic sentiment index for July
- 1.30pm BST: US inflation data for June
- 2pm: NIESR publishes its monthly UK GDP Tracker for April-June