UK growth slows as computer chip shortage hits carmaking

GDP expanded by 0.8% in May, which was much weaker than the 1.5% forecast

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Last modified on Fri 9 Jul 2021 03.18 EDT

Britain’s economic recovery stumbled in May when growth slowed to 0.8% after a contraction in building work and a slump in car production.

It was the fourth consecutive month of GDP growth, and followed 2% growth in April, but the slowdown in May was sharper than expected after City economists had forecast a 1.5% increase.

The Office for National Statistics (ONS) said the manufacturing industry was hit by a shortage of computer chips that forced car companies to cut back production.

As a result, transport equipment manufacturing fell by 16.5%, its largest fall since April 2020 and the worst period of the coronavirus pandemic.

Shortages of timber and steel brought many building projects to a standstill and led to the construction sector shrinking for a second consecutive month by 0.8%.

Over the three months to May, GDP grew by 3.6%, mainly because of strong retail sales over the period as non-essential shops, bars and restaurants opened their doors.

The ONS said the broader services sector grew as the Covid-19 restrictions continued to ease, more people returned to work and a larger number of pupils attended school.

The service sector grew by 0.9% in May, driven by a 37.1% rise in accommodation and food service activities as restaurants and pubs welcomed customers back indoors.

“Despite growth in consumer-facing services, it is travel, transport and other personal services that continue to contribute to output remaining below pre-pandemic levels,” the ONS said.

The economy was 3.1% smaller in May than it was in February 2020, before the pandemic.

Samuel Tombs, the chief economist at Pantheon Macroeconomics, said growth in GDP was likely to slow further over the summer.

“An array of indicators suggest that economic activity stabilised in June. This probably partly reflects the fading of some initial enthusiasm when businesses reopened.

“Rising Covid-19 infections also appear to be prompting some people to work from home again and to visit shops and services venues less frequently. What’s more, the UK’s self-isolation rules increasingly are constraining labour supply,” he added.

Rishi Sunak said government support for the economy had allowed it to maintain momentum through May.

“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,” the chancellor said.

“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 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.”

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