UK economy around a quarter smaller than before pandemic
London: 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 per cent 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 per cent anticipated in financial markets and means the economy remains 24.5 per cent smaller than it was in February, before the full impact of the Coronavirus. In April alone, the economy shrank by a staggering 20.3 per cent.
"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 were 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.
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 were not fired. Some 1.1 million employers have taken advantage of the program to furlough 9.4 million people at a cost to the government of 27.4 billion pounds (USD 35 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 UK and urged Sunak to announce targeted support for the hardest-hit sectors like retail, manufacturing and aviation.
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