The economy grew by 0.8 per cent in May as coronavirus restrictions continued to ease, undercutting expectations.
According to figures released today by the Office for National Statistics, this was the fourth consecutive month of gross domestic product growth, albeit growth was slower than in March (2.4 per cent) and April (2 per cent).
GDP is now 3.1 per cent below its pre-pandemic February 2020 levels.
Growth was driven by the services sector. As lockdown restrictions eased through May, there was growth in consumer facing services such retail and hospitality. Having increased by 3.2 per cent in May, consumer facing services are nearing their pre-pandemic levels.
The production sector grew by 0.8 per cent in May 2021, for which the main driver of growth was electricity, gas, steam and air conditioning supply, which grew by 5.7 per cent. Meanwhile, the manufacturing sector remained flat.
The construction sector also contracted by 0.8 per cent in, following exceptionally strong growth in February and March, but it remains the only sector where output is above its pre-pandemic level.
Paul Craig, portfolio manager at Quilter Investors, said: “The UK posted modest GDP growth in May, with output increasing by 0.8 per cent given all but the very highest risk businesses were finally allowed to put an ‘open’ sign on their door.
“Consumers are responding to the easing of restrictions well, and strong spending in consumer-facing sectors is clearly the engine room of the recovery, although May’s growth is a slowdown compared to the previous two months.
“But there is only so far growth can go. The rapid increase in output is a reflection of the fact that GDP fell through the floor last year, and we are still 3.1 per cent below pre-pandemic GDP-levels. And much of the spending will be a one-off, particularly in sectors such as home improvements.”
The UK economy showed signs of revival in April as GDP rose 2.3 per cent which was the fastest monthly growth since July last year.
At the time, chancellor of the exchequer Rishi Sunak said: “Today’s figures are a promising sign that our economy is beginning to recover."
Craig added: “In the boom there is still some gloom. There’s a danger that the ‘booming’ consumer-facing services sector masks trouble elsewhere.
“And then there’s the risk of variants. Things still could turn on a sixpence and all we hear about in the press is the rising case numbers and how things will play out once ‘freedom day’ is upon us.
“We are throwing caution to the wind and nobody knows how consumers will react. The surging case numbers and lack of mask wearing may well just encourage them to stay at home, out of choice this time around. Only time will tell.”
Sterling remained under pressure versus the dollar, dropping from $1.42 in early June to below the $1.38 mark.
Jesús Cabra Guisasola, associate at Validus Risk Management, added: “Looking ahead, risks continue to be on the table with the country heading towards the last stage of the reopening on 19 July, which could help the delta variant to spread more rapidly.”
Ian Warwick, managing partner at Deepbridge Capital, also said today’s data served as a further reminder that the “UK economy is not out of the woods” just yet.
“We are however clearly moving in the right direction and as we focus on economic recovery, it remains critically important that scale-up businesses, particularly in high-growth sectors such as digital technologies and life sciences are supported; as they will be at the very heart of economic growth as we create an economy fit for the twenty-first century.”
Meanwhile, last month, speaking at Federated Hermes’ outlook roundtable (June 17), Eoin Murray, head of investment at the investment manager, said recovery of global GDP would be "at some point within the first half of 2022".
sonia.rach@ft.com
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