The economy continues to recover as UK GDP increased for a 4th consecutive month. Nevertheless, a world wide shortage in microchips led to a slowdown in the rate of GDP growth in May 2021, which had an adverse impact on manufacturing, with car makers having to cut back on production.
UK GDP Growth
UK GDP grew by 0.8% in May 2021, the 4th consecutive month of growth, according to the Office for National Statistics (ONS). This followed increases in February 2021 (0.4%), March 2021 (2.1%), and April 2021 (2.3%).
Moreover, the UK economy had been forecast to contract by 4% in the first quarter of 2021, by the Bank of England, due to the 3rd Covid-19 national lockdown. However, ultimately, the ONS found that UK GDP fell by only 1.5% during the first quarter, mostly due to a sharp downturn in January 2021 (-2.2%).
Accordingly, overall the UK economy has rebounded more quickly than antipated, and is now just 3.1% smaller than the pre-pandemic peak reached in February 2020.
May 2021 Statistics
Whilst UK GDP increased by 0.8% overall, economists had forecast growth of 1.5%. Hence, the news that growth was only roughly half what had been expected came as a disappointment. However, the world wide shortage in microchips created by the Covid-19 pandemic, had a far greater adverse impact than expected, with transport equipment manufacturing registering a slump of 16.5% as car makers were forced to scale back production.
Manufacturing contracted by 0.1% overall during May, whilst construction also fell by 0.8%. Nevertheless, this was offset by increases in production (0.8%) and services (0.9%).
Unemployment Falls
With UK GDP registering increases for 4 consecutive months, unemployment has been falling. Unemployment fell from 4.8% in the 3 months to March 2021, to 4.7% in the 3 months to April 2021, according to the ONS. At the same time, the number of payrolled employees increased by 197,000 to 28.5 million in May 2021. This represents a 6 consecutive monthly increase.
Consumer Spending
The increases in UK GDP in recent months have translated into an increase in consumer confidence, with spending on credit and debit cards increasing by 3% in the week to the 1st July 2021, to reach 96% of the level reached immediately prior to the pandemic in February 2020.
Moreover, whilst a report from Growth for Knowledge found that consumer confidence had plummeted to -34% during the final 2 weeks of March 2020 in the wake of the first Covid-19 national lockdown, the largest fall since records began in January 1974, by the 24th July 2020, the index had recovered to -27%. And a year on from that, the index has steadily climbed back up to just -9% in June 2021.
UK GDP Recovery: Reaction
Reacting to the 4th consecutive month of UK GDP growth, the Chancellor of the Exchequer, Rishi Sunak, stated: "Our unprecedented package of support – including business loans, the furlough scheme and a reduced rate of VAT for the hospitality and tourism sectors – has protected millions of jobs and helped businesses survive the pandemic. And with the number of people on furlough halving in just three months as the economy reopened, it is clear our plan for jobs is working."
The Chancellor added: "The government is continuing to support the recovery, with the furlough scheme in place until September and schemes like Restart helping people who have sadly lost their jobs get back into work."
However, the Chief Economist at KPMG, Yael Selfin, sounded a note of caution by stating: "May signals slowing growth as the recovery matures. With monthly growth down from the 2.3% recorded in April, these figures reflect a gradual deceleration in the speed of recovery as the economy approaches pre-Covid levels. Chip shortages have hit carmakers. The economy is still more than 3% smaller than it was pre-pandemic."
Selfin concluded that: "We still expect the economy to run hot over the coming months, with pent-up demand fuelling many industries. However, bottlenecks are already starting to emerge across various sectors – from labour shortages to supply chain pressures - as a result of the speed at which many are keen to reopen."
