United Kingdom: The economy recoups ground in May on stronger car production, but momentum is still tepid
According to monthly GDP data released by the Office for National Statistics (ONS), economic activity rose 0.3% in May over the prior month in seasonally-adjusted terms, contrasting April’s 0.4% decline and beating market expectations of 0.1% growth. May’s recovery was driven in part by stronger car production, after several manufacturers had temporarily closed their plants in April.
Looking at quarterly data, which helps smooth month-to-month volatility, shows the economy remains stuck in low gear. In March-May growth clocked 0.3% over the prior three-month period, down from the revised 0.4% expansion in February-April (previously reported: 0.3%). The all-important service sector expanded at only a mild pace, while manufacturing nearly flatlined.
According to Azas Zangana, economist at Schroders, the data “suggests that there is still a significant chance that the economy shrank in the second quarter of the year.”
Looking to H2, the economy appears to be going nowhere fast, as ongoing Brexit uncertainty will continue delaying firms’ investment decisions and tempering business sentiment. Although there could be a temporary boost from re-stockpiling if it appears likely that the UK will crash out of the EU on 31 October without a deal, this effect should then be offset by subsequent inventory drawdowns, as observed in H1.