UK economy grew just 1.8% in May as hopes for V-shaped recovery fade after record coronavirus lockdown plunge
THE UK economy grew by 1.8 per cent in May as coronavirus lockdown restrictions were eased.
But GDP has not yet recovered from record falls in March and April and is still down 24.5 per cent compared to pre-coronavirus levels in February.
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The UK economy fell by 5.8 per cent in March as coronavirus lockdown triggered a crash in activity.
GDP then plunged by 20.4 per cent in April – the biggest monthly fall on record.
The UK economy was boosted in May by retail sales and the repair of motor vehicles, according to the Office for National Statistics (ONS).
In May, the retail industry grew by 12 per cent thanks to strong sales in non-food stores and a record proportion of online sales.
What this means for your personal finances
GROSS domestic product (GDP) is one of the main indicators used to measure the performance of a country's economy.
When GDP goes up, the economy is generally thought to be doing well although today's figures aren't as strong as hoped.
Negative growth often brings with it falling incomes, job cuts and lower consumption.
The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.
This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.
So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.
The BoE cut interest rates twice in March due to coronavirus.
Base rate cuts means mortgage borrowers now typically benefit from lower rates, but at the other end of the scale savers earn less on their savings.
To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies.
Andrew Wishart, UK economist at Capital Economics, told The Sun the full impact of the crisis on jobs and businesses will only become apparent once the government starts to withdraw its support.
The research firm expects unemployment to double from 4 per cent to 8 per cent, with the same number of companies likely to go bust.
The economy also returned to growth after lockdown restrictions on the construction sector were lifted on May 11.
But the hopes of a V-shaped recovery have faded given the small increase in GDP.
In the beginning of July, the Bank of England's chief economist Andy Haldane said the UK economy was on track for one but added that "considerable" risks remained.
Meanwhile, the Office for Budget Responsibility (OBR) today predicted GDP could fall by 14.3 per cent this year.
It added that unemployment levels are set to treble to 12 per cent as the furlough scheme comes to an end.
Since March, almost 60,000 jobs have been lost or put at risk due to store closures or major cut backs at high street retailers, manufacturers, airlines, and restaurants chains.
And in just one day in July, more than 12,000 jobs were put at risk by firms including Upper Crust, easyJet and Airbus.
Meanwhile, OECD warned last week that a second wave of coronavirus could make one in seven unemployed.
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It comes as more than 9.3million workers in the UK have been furloughed, with businesses set to contribute to the scheme from next month.
In last week's mini-Budget, Chancellor Rishi Sunak revealed how he plans to tackle the economic impact of the coronavirus crisis including bonuses for businesses that re-employ furloughed staff.
Jeremy Thomson Cook, chief economist at Equals, said the latest GDP data is "little more than a false dawn".
He added: "May’s run of GDP, industrial production and services sector activity confirms that it’s easier to fall down a lift shaft than walk up a flight of stairs and the ongoing economic recovery will need many more months before even a vague sense of normality is restored.
"There are few signs that the UK economy is close to anything resembling a v-shaped recovery, although we do expect that June’s data will be considerably better than May’s."
Mr Cook told The Sun it's too early to tell how long it'll take before the UK economy recovers to pre COVID-19 levels given the risk of a second wave later in the year.
Robert Alster, head of investment services at Close Brothers Asset Management, added that the 1.8 per cent growth "points to choppy waters ahead".
He said: "The government will be hoping that we’ve already reached economic ‘rock bottom’ and that these latest figures are the start of a consistent, upward rebound.
“While GDP has improved slightly, it’s worth noting that the economy is still 25 per cent smaller than it was in February, before the pandemic took hold.
"Jobs, both on the high street and in industry, are disappearing at an alarming rate and there are no signs yet of any real improvement in the UK labour market."
Meanwhile, Frances O’Grady, general secretary of trade union TUC, said: "Closing down large parts of the economy was always going to lead to a sharp fall in GDP.
"With only a slight gain into May, the danger is that the pandemic could lead to an economic crisis.
"Mass unemployment is the biggest threat facing the UK – as the thousands of job losses at British Airways and Airbus show.
"But the government’s announcements last week fell far short of what we need to stem the tide of redundancies."
"The chancellor should have announced targeted support for the hardest-hit sectors like retail, manufacturing and aviation."
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UK retailers have said they saw the biggest monthly sales jump in more than two years in June after swathes of high street stores reopened.
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But they warned that the troubled sector is "not out of the woods yet".
The BRC-KPMG retail sales monitor for June revealed a 3.4 per cent increase, representing the highest increase since May 2018.