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UK’s economic rebound slowed in May according to official data

UK’s economic rebound slowed sharply in May despite a relaxation of social-distancing rules, according to official data which also showed a hit to carmakers from the global shortage of microchips.

Gross domestic product expanded by a monthly 0.8%, much faster than its typical pre-pandemic pace but down from April’s 2.0% surge. It was also a lot weaker than the median forecast of 1.5% in a Reuters poll of economists.

“Of course, the pace of the recovery was always going to slow as the economy climbed back towards its pre-crisis level. But we hadn’t expected it to slow so much so soon,” Paul Dales, an economist with Capital Economics, said.

Britain suffered one of the biggest hits from the pandemic among advanced economies last year and GDP in May was 3.1% below its level in February 2020 just before the pandemic struck.

The Bank of England expects Britain’s economy to grow by 7.25% this year, the fastest since 1941. Last year output plunged by almost 10%, the biggest drop in more than 300 years.

April saw the easing of restrictions for many retailers, hairdressers, and pubs and restaurants that could serve customers outside. In May, hospitality firms were allowed to resume indoor service.

Britain’s dominant services sector grew by a weaker-than-expected 0.9% in May from April as a huge 37.1% monthly jump for accommodation and food services failed to offset slower increases elsewhere in the sector.

Supermarket sales fell as more people ate out, and education output dropped due to a decline in school attendance. Reduced COVID-19 testing also weighed on GDP.

Industrial output grew by 0.8% but manufacturing shrank narrowly. The chip shortage affecting carmakers led to the biggest fall in their output since April 2020.

Data published earlier this week showed Germany’s industrial output fell in May as semiconductor bottlenecks also contributed to a recovery slowdown in Europe’s largest economy.

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Bank of England Governor Andrew Bailey, taking part in discussions with his Group of 20 peers, said the world needed “robust openness to prevent the breakup of supply chains, which we are seeing threats to” in data from Britain and beyond.

“I think the G20 is in the front line here in reinforcing the importance of openness in a multilateral context,” he said.

Output in Britain’s construction industry contracted by 0.8% from April, hit by the fourth-rainiest May since 1862. Dales at Capital Economics said the fall could also reflect shortages of materials and labour.


Prime Minister Boris Johnson plans to lift most of the remaining restrictions from a third lockdown on July 19.

Rory MacQueen, an economist at the National Institute of Economic and Social Research, a think-tank, said the decision could yet backfire.

“It remains to be seen whether the lifting of further restrictions in July contributes to a continuation of strong growth in the third quarter or – if cases of COVID-19 continue to rise – increased caution among consumers and even another national lockdown,” he said.

Cases of the Delta variant of the coronavirus have accelerated in recent weeks but private-sector data and surveys have suggested no major hit to hiring or consumer behaviour.

The ONS revised down its figure for growth in April to 2.0% from 2.3% – reflecting a reduced contribution from COVID testing – although the estimate for March was increased.

Compared with May last year, when the country was in its first coronavirus lockdown, GDP was up by nearly 25%.

Separate data showed British imports and exports with the European Union continued to recover after a slump in January when the country finally left the bloc’s single market. But they remained below trade volumes with the rest of the world.

Reporting by William Schomberg and David Milliken

Source: Reuters

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A year of Covid lockdowns cost the UK economy £251bn

A year of Covid-19 lockdowns has cost the UK economy £251bn – the equivalent of the entire annual output of the south-east of England or nearly twice that of Scotland, according to a report published on Monday.

Analysis by the Centre for Economics and Business Research found that while the whole of the country had suffered huge damage from restrictions on activity since the first national lockdown began, some poorer regions had suffered the most.

The consultancy said the north-south gap would widen unless the government took steps to ensure that the less well-off parts of the UK did not disproportionately bear the economic losses caused by the pandemic.

Sam Miley, a CEBR economist, said the report compared his organisation’s pre-Covid-19 forecasts for the UK with the level of output 12 months after Boris Johnson told Britons that they had to stay at home.

Gross value added (GVA) – which measures the value of the goods and services produced by the economy, minus the costs of inputs and raw materials needed to deliver them – was more than £250bn lower than it would otherwise have been, Miley said.

“Consumer footfall has plummeted, businesses are still shut, and many individuals have found themselves out of work. Further bouts of area-specific restrictions have added some regional variation to economic fortunes, a matter made all the more pertinent given the government’s promises to ‘level up’,” he said.

“These factors, amongst countless others, have entailed a huge cost to the UK economy, in addition to the devastating cost of thousands of lost lives.”

In absolute terms, the losses in London were the highest of any region, amounting to £51.4bn of lost activity. This was followed by the south-east and east of England, with losses of £34.7bn and £26.6bn respectively.

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But the CEBR said a different picture emerged when the size of each region’s contribution to the economy was factored in.

London accounted for just under a quarter of the UK’s GVA but had suffered just over a fifth (20.5%) of the losses since the start of the pandemic. This could be explained by London’s reliance on sectors such as finance and insurance, and information and communication, which had exhibited the smoothest transition to working from home.

By contrast, Scotland, Wales and regions such as the West Midlands, East Midlands, and the East of England, had suffered Covid-induced losses larger than their typical contributions to the economy.

Miley said that despite the anticipated recovery in the economy once lockdown restrictions were eased, some regions could be more subject to lingering effects from the pandemic, such as higher rates of joblessness and a greater degree of business closures.

“If the government is truly committed to addressing regional imbalance, it will not allow these areas to disproportionately bear the weight of the losses brought on by the pandemic. To do otherwise would risk further divergence in fortunes.”

This month, the Office for National Statistics said output as measured by gross domestic product (GDP) was 9% below where it was in February 2020, the last month before the first lockdown.

A separate report from the Learning and Work Institute has suggested that Britain’s economic recovery from the Covid crisis could be hampered by a looming digital skills crisis caused by a sharp fall in the number of young people taking IT courses.

The LWI – an independent policy, research and development organisation – said the number of young people taking IT subjects at GCSE had fallen by 40% since 2015, and the numbers taking A-levels, further education courses and apprenticeships were also declining.

It found less than half of UK employers believed new entrants to the workforce were arriving with the necessary advanced digital skillset.

The mismatch between the rising demand for digital skills and the supply of sufficiently trained recruits was already costing the economy billions of pounds and the potentially “catastrophic” gap would widen over time without urgent action, it said.

Source: Hellenic Shipping News

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UK economy shrank in November as new lockdown hit

UK economy shrank by 2.6% in November, the first monthly fall in output since the country was under its initial COVID lockdown last April as new restrictions were imposed to slow the spread of the disease. However, the scale of the decline was much smaller than most analysts expected – a Reuters poll had pointed to a 5.7% contraction.

Britain’s economy is now 8.5% smaller than it was before the start of the coronavirus pandemic in February. “Many businesses adjusted to the new working conditions during the pandemic … while schools also stayed open, meaning the impact on the economy was significantly smaller in November than during the first lockdown,” ONS statistician Darren Morgan said.

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The Bank of England had estimated Britain’s economy would shrink by just over 1% over the final three months of 2020. With a new lockdown in place since January the country is still at risk of falling into a double-dip recession.

The BoE ramped up its bond-buying programme to almost 900 billion pounds ($1.23 trillion) in November and Governor Andrew Bailey said this week that it was too soon to say if further stimulus would be needed. Friday’s data showed Britain’s economy in November was 8.9% smaller than a year earlier, a smaller drop than the 12.1% fall forecast in a Reuters poll. In October the economy had been 6.8% smaller than a year before.

At its lowest point in April, when many businesses closed temporarily, output was a record 25% below its year-ago level. November’s downturn was led by the services sector, where output fell 3.4% from October as pubs, restaurants, non-essential shops and many other consumer services businesses had to shut as part of a four-week lockdown in England and similar measures in other parts of the United Kingdom.

Source: The Economic Times

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