UK economic bounceback falls short of V-shaped recovery hope

U.S. and World Business News

FILE – In this Thursday, May 7, 2020 file photo, a construction worker passes a sign thanking the NHS in London, as the country in is lockdown to prevent the spread of coronavirus. The British economy grew by far less than anticipated during May, dampening hopes that the recovery from what is set to be one of the country’s deepest recessions in centuries will be rapid. The Office for National Statistics said Tuesday, July 14, 2020, that the economy grew by 1.8% in May from the previous month after some easing of the lockdown, such as encouraging those in construction or manufacturing to return to work. (AP Photo/Kirsty Wigglesworth, File)

LONDON (AP) — The British economy grew by far less than anticipated during May, dampening hopes that the recovery from what is set to be one of the country’s deepest recessions in centuries will be rapid.

The Office for National Statistics said Tuesday that the economy grew by 1.8% in May from the previous month after some easing of the lockdown, such as encouraging those in construction or manufacturing to return to work. The crucial retail sector was also buoyed by record online sales.

“However, with lockdown restrictions remaining in place, many other services remained in the doldrums, with a number of areas seeing further declines,” said Jonathan Athow, Deputy National Statistician for Economic Statistics.

The increase recorded during May was far lower than the 5% anticipated in financial markets and means the economy remains 24.5% smaller than it was in February, before the full impact of the coronavirus. In April alone, the economy shrank by a staggering 20.3%.

“The chances of a quick return to normal, of the famed V-shaped recovery, are falling,” said Ian Stewart, chief economist at Deloitte. “It is likely to take years, not months, to repair the damage to the economy done by COVID-19.”

Most economists think the recovery will gather pace during the summer when more lockdown restrictions have been eased. In June, shops selling items considered nonessential such as books and shoes reopened, followed in early July by the reopening of much of the hospitality sector, including pubs and restaurants.

But with people still fearful of contracting COVID-19, social distancing rules remaining in place, and many workers worried about losing their jobs, the economy is not anticipated to make up the ground lost due to the coronavirus any time over the coming months.

According to the Office for Budget Responsibility, the country’s independent budgetary watchdog, the U.K. economy could shrink by 14.3% in 2020 and in a worst-case scenario won’t recoup the output lost over the past few months until the third quarter of 2024.

It said that the country is “on track to record the largest decline in annual GDP for 300 years” with output set to fall by 10.6% this year in even its most optimistic projection.

Unemployment is expected to rise sharply over the coming months as the government withdraws some of its emergency support. The number of firms cutting jobs has accelerated in the past couple of weeks, with the likes of Airbus and Rolls Royce among many announcing big job cuts. Many economists think unemployment could more than double to over 3 million this year, levels last seen in the 1980s.

So far, Britain has been spared the sharp rises in unemployment seen in the U.S., for example, because of the Job Retention Scheme, whereby the government has been paying the majority of the salaries of workers who have not been fired. Some 1.2 million employers have taken advantage of the program to furlough 9.4 million people at a cost to the government of 28.7 billion pounds ($36 billion).

Britain’s Treasury chief, Rishi Sunak, said the latest growth figures “underline the scale of the challenge” ahead.

“I know people are worried about the security of their jobs and incomes,” he said.

Last week, Sunak announced a new bonus plan aimed at getting firms to retain workers who have been idle for months under the furlough scheme.

Frances O’Grady, general secretary of the umbrella Trades Union Congress, said mass unemployment is the “biggest threat” facing the U.K. and urged Sunak to announce targeted support for the hardest-hit sectors like retail, manufacturing and aviation.

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