Tuesday 14 July 2020 1:02 pm

UK economy grows by much less than expected after April crash

The UK economy grew at a much slower rate than expected in May after April’s historic crash, official figures have shown, in a sign that the recovery could be weaker than anticipated.

UK GDP expanded by 1.8 per cent in May, the Office for National Statistics (ONS) said, after shrinking by an enormous 20.3 per cent in April. Analysts had expected growth of five per cent.

Read more: Bank of England’s Andrew Bailey says he’s ‘very worried about jobs’

May’s figures were “a disappointing first step on the road to recovery,” said Thomas Pugh, UK economist at consultancy Capital Economics.

He said it “suggests that hopes of a rapid rebound from the lockdown are wide of the mark”.

It came just before the UK budget watchdog warned the UK economy is facing its worst crash in 300 years. Its “central scenario” said GDP would shrink by 12.6 per cent this year.

Chancellor Rishi Sunak said: “Today’s figures underline the scale of the challenge we face. I know people are worried about the security of their jobs and incomes.”

The manufacturing sector grew again after the government lifted some restrictions on factory activity in the middle of the month. It expanded 8.4 per cent after shrinking by a record 24.4 per cent the month earlier.

But deputy national statistician Jonathan Athow said: “Despite this, the economy was still a quarter smaller in May than in February.”

Services struggle for growthas UK economy underwhelms

The UK’s huge services sector expanded by just 0.9 per cent in May after shrinking 18.9 per cent in April, the ONS said. It was much slower than the roughly five per cent expansion analysts had predicted.

Athow said that with lockdown restrictions remaining in place, much of the services sector “remained in the doldrums”.

The government began slowly easing the coronavirus lockdown in the middle of May to try to help the UK economy.

Prime Minister Boris Johnson encouraged factories and construction sites to reopen. And he said people who could not work from home should return to the workplace.

The government gradually lifted more coronavirus lockdown restrictions in June and allowed pubs, restaurants and cafes to reopen last weekend.

Yet Tej Parikh, chief economist at the Institute of Directors business group, said today’s figures “underline that a return to normality won’t be straightforward for the UK economy”.

Read more: New job retention bonus at heart of Rishi Sunak’s £30bn spending spree

“Firms continue to face significant uncertainty around consumer demand and are still adjusting to operating under social distancing.”

Sunak last week unveiled a £30bn stimulus package, taking government spending on the pandemic to around £190bn.

OBR sounds warning over public finances

uren Thiru, head of economics at the British Chambers of Commerce, said: “More significant fiscal stimulus is likely to be needed.”

He recommended “a cut in employer national insurance contributions”.

The Office for Budget Responsibility (OBR) today said the UK economy could well shrink by 12.4 per cent this year.

The OBR presented three “scenarios” for the economy. It said UK GDP is most likely to only recover its pre-coronavirus crisis size by the end of 2022.

It said a collapse in tax receipts and much higher spending meant borrowing this year is set to balloon to £370bn. That would be by far a peacetime record.

Read more: OBR: Public borrowing set to top £370bn amid worst crash in 300 years

Jonathan Gillham, chief economist at PwC, said the big question is “how rapidly can the economy bounce back”.

“The message from May’s data appears to be that the economy is currently operating at a very low level of output. But some sectors are starting to increase output from what was observed in April.”