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GDP up by 1.8% but a quick recovery looks unlikely

Written by: Emma Lunn
Monthly gross domestic product (GDP) grew by 1.8% in May 2020, according to figures from the Office of National Statistics (ONS).

But despite the rise, the level of output did not recover from the record falls seen in March and April 2020 and the economy has shrunk by almost a quarter (24.5%) compared with February 2020, before the full impact of the coronavirus.

Economists had hoped the economy would bounce back and that pent up demand would see growth by as much as 5% to 10%.

Capital Economics called the 1.8% month-on-month rise in May a “disappointing first step on the road to recovery” and said it suggests hopes of a rapid rebound from the lockdown are “wide of the mark”.

Robert Alster, head of investment services at Close Brothers Asset Management, said: “These are undoubtedly worrying figures. For the economy to only grow by 1.8% in May, the month where lockdown started to ease, points to choppy waters ahead.

“The government will be hoping that we’ve already reached economic ‘rock bottom’ and that these latest figures are the start of a consistent, upward rebound.

“While GDP has improved slightly, it’s worth noting that the economy is still 25% smaller than it was in February, before the pandemic took hold. Jobs, both on the high street and in industry, are disappearing at an alarming rate and there are no signs yet of any real improvement in the UK labour market.

Paul Craig, portfolio manager at Quilter Investors, said: “The latest figures on UK GDP shows that April was the trough for the UK economy and the long, slow road to recovery has begun. It is clear that this is unlikely to be a quick bounce back recovery for the UK, and more one that is gradual.

“Provided the UK doesn’t suffer further shutdowns like the one experienced, we should begin to see the shoots of this recovery play out in the next few updates coming. Given this is a fairly backward looking data set, it is important investors do not lose site of the opportunities that are available in the UK as the economy attempts to fire on all cylinders again.”

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