United Kingdom: Economy remains in the doldrums in May despite uptick from April
GDP increased 1.8% month-on-month in seasonally-adjusted terms in May (April: -20.3% mom), supported by recoveries in industrial production and construction. While May’s figure marked the best result since July 2012, this was due to an extremely favorable base effect, and economic activity remained deeply depressed. The service sector in particular was hampered by strict social distancing measures.
On a rolling quarterly basis, GDP dropped 19.1% in March–May, which was significantly greater than February–April’s 10.8% fall and marked the worst result on record.
Economic activity readings should improve going forward. In England, non-essential shops reopened from 15 June, and bars and restaurants reopened from 4 July, which will aid the services sector. However, a huge contraction is still forecast for 2020 as a whole, and the risk of a second wave of infections clouds the outlook.
Assessing the outlook, James Smith, an economist at ING, commented: “We suspect that when we get the June GDP figures, the economy will still have been around 20% smaller at the end of the second quarter than it was pre-virus. And while we should see some further recovery through the summer as more industries are allowed to open, it’s clear that the economy is going to continue operating well below pre-virus levels for some time.”