Hopes of the UK staging a V-shaped recovery from the coronavirus sell-off have been dashed as GDP in May rose by a “paltry” 1.8%, falling far below expectations.
Latest figures from the Office for National Statistics revealed a marginal increase in domestic output from a 20.3% drop in April, but the figure was 24.5% smaller than in February before the Covid-19 lockdown began.
Construction grew by 8.2% in May, after a record fall of 40.2% in April, but the level of output remained 38.8% lower than in February. Similarly, manufacturing grew by 8.4% during the month. These areas were not under direct lockdown and so started to come back to life sooner than others.
In the three months to May, GDP dropped by 19.1% as government restrictions on movement due to the pandemic dramatically reduced economic activity. The services sector alone fell by 18.9% in the three-month period.
ONS deputy national statistician for economic statistics Jonathan Athow said: “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.”
Gam Investments investment director Charles Hepworth described May’s increase as “paltry” and far below the consensus expectations of a 5.5% bounce back.
“This confirms the view that any recovery in economic activity will not follow the hoped for V-shaped pattern – it’s more likely to see a much slower trajectory,” he said. “Lockdowns are easing and it’s no wonder Boris Johnson wants the country to get back to work, but there are just too many negatives weighing on the UK economy in the short run which continue to batter both consumer and business confidence.”
But Beaufort Investment chief investment officer Shane Balkham said there was a “silver lining to the dark cloud” of the latest GDP figures.
He added: “Although significantly down from the pre-crisis level recorded in February, the 1.8% uplift in May provides some encouragement that the effects of the loosening restrictions have started to come into play.
“While no one can extrapolate the recovery at this point, today’s figures are a clear move in the right direction. All eyes will now be on the Q2 figures expected 13 August, which we hope will grow the silver lining.”
Quilter Investors portfolio manager Paul Craig said the results show that April was the trough for the UK economy and the slow road to recovery has begun.
“Provided the UK doesn’t suffer further shutdowns like the one experienced, we should begin to see the shoots of this recovery play out in the next few updates coming. Given this is a fairly backward looking data set, it is important investors do not lose site of the opportunities that are available in the UK as the economy attempts to fire on all cylinders again.”
