Despite the fact that the coronavirus lockdown was still in place in May 2020 for the most part, with non-essential shops, for instance, not re-opening in England until the 15th June 2020 (later, for the rest of the UK), the economy rebounded with GDP growth of 1.8% in May, according to new statistics from the Office for National statistics (ONS). This contrasts with a record fall in GDP of 20.4% in April 2020.
The GDP growth of 1.8% was said by some to be "disappointing", but only in terms of some rather overinflated suggestions by some economists, who were hoping for GDP growth of around 5.5%. Given that the economy was still largely in lockdown during May 2020, those predictions were somewhat over the top. Whether the UK is on course for a V-shaped recovery, or something more procrastinated and fitful, will be something that can only be determine once the GDP figures for June 2020 are in, as that was the month when the coronavirus lockdown began to be eased and lifted.
Economy Rebounded In May 2020
The ONS report that the UK economy rebounded in May 2020, with GDP growth of 1.8%. The report also found that:-
- GDP fell by 19.1% in the 3 months to May 2020. This was due to substantial falls in March and April 2020, which outweighed the small rebound in May 2020
- Services output contracted by 18.9% during the period March -May 2020, whilst production fell by 15.5% and construction by 29.8% during the same quarter. Most of the decline occurred during April 2020, the first full month of the coronavirus lockdown. However, in line with the fact that the economy rebounded in May 2020, services output grew by 0.9% during that month, production by 6.0%, and construction by 8.2%. The only area of the economy that continued to contract during that month was agriculture, which fell by 6.2%
- Consumer spending increased by 12% in May 2020. This was assisted by a huge increase in online shopping, which accounted for a record 33.4% of all consumer spending. Furthermore the reopening of hardware stores during the month, meant that there was a 42% increase in spending in household goods stores. Moreover, whereas a report from Growth for Knowledge found that consumer confidence had plummeted to -34% during the final 2 weeks of March 2020, and to -36 during the heart of the lockdown, it has now recovered to -27% during the 2 weeks to the 26th June 2020.
- Following the devastating unemployment figures for April 2020, in which the number of people seeking unemployment related benefits (known as the claimant count) increased by 69.1% to 2.1 million, the statistics for May 2020 and June 2020 were better than economists were expecting. According to the ONS, the number of people in employment in the UK fell from 32.99 million in April 2020, to 32.95 million in May 2020, with unemployment rising from 1.34 million to 1.35 million in May 2020. Hence, the unemployment rate remained unchanged at 3.9% of the workforce. It had been anticipated by economists that the rate would rise to around 4.2%. Furthermore, back in April 2020, the claimant count increased to 2.1 million. It increased again to 2.8 million in May 2020 (an increase of 23.3%), but fell back to 2.6 million in June 2020 (economists had been expecting another increase). Overall, the claimant count has increased by 1.4 million since March 2020, an increase of 112.2%, and the ONS report that the number of employees on payroll has fallen by around 650,000 since March 2020.
Reaction
Reactions to the news that the economy rebounded in May 2020, has been mixed. The senior economist at PwC, Jing Teow, stated: "The monthly data [on unemployment] paints a more hopeful picture with very early signs of recovery. Actual hours worked on a weekly basis showed signs of increasing in May, while the decline in vacancies and the claimant count saw signs of tailing off in June......This suggests that the reopening of the economy has had a positive impact." In contrast, Thomas Pugh, an economist at Capital Economics states that the increase in GDP of 1.8% in May 2020, was “a disappointing first step on the road to recovery and suggests that hopes of a rapid rebound from the lockdown are wide off the mark....Indeed, the path to full economic recovery will probably be much longer than most people anticipate.” However, in our view, such an assessment cannot realistically be made on the basis of May 2020's statistics, given that the economy was mostly still in lockdown. A more realistic assessment will need to wait until the June 2020 figures are released.
