Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce, looks at the latest economic data.
In one of the major releases of this month’s UK economic data, the Office for National Statistics yesterday released monthly GDP figures covering the period up to May 2020. With this release, we have some key macroeconomic information for the two months that saw the most serious public health and economic impacts of the Covid-19 pandemic - April and May. Further releases are expected - notably labour market information expected later this week and retail sales expected next week. Together, these datasets will help policy makers understand the ramifications of the lockdown and early indications of any shift economic impact as the economy reopens.
I have previously written about how economic data releases can fit into any narrative that the narrator wants to recount. This release is probably no exception. In an alternative timeline, one in which a global pandemic has not touched everyone's life, a 1.8% increase in monthly UK GDP, would have been a cause celebre, to be extolled as a milestone. Instead, yesterday's announcement has been dubbed as a “disappointing” increase in output - a reflection of the atypical economic environment that we are forced to contend with.
First, some context. In the past 10 years, monthly GDP has not increased by more than 2% ever. Compared with that, a 1.8% increase would have been an achievement. But this increase comes on the back of a historic contraction in the UK economy. With sharp monthly decreases of 20.3% in April and 6.9% in March, the first five months of 2020 have together accounted for a 25% reduction in the UK’s GDP. In value terms, the UK’s GDP has shrunk by over £110 billion since December 2019. The 1.8% increase was also two-thirds less than what was anticipated. With some reopening of the economy having begun in May economists expected GDP to increase by over 5% in May. As it transpired, real growth was a lot less despite the low base from which to grow - undeniably no cause of celebration.
Hidden in the headline figure are some fascinating details. Key contributions to the 1.8% increase came from the manufacturing and construction sectors, both of which grew by over 8% in the month. The services sector, which accounts for over 80% of the UK’s economy, grew by only 0.9%. Notably, this meagre growth is prior to reopening of large parts of the retail sector. Yet, retail sales grew by 12% in May and was the biggest contributor to growth in the services sector. This must mean that May was another bumper month for internet sales. This is an area to watch in the coming month as high street outlets will be concerned about a long-term change in shopping behaviour.
So, where does this leave us on the path to recovery? Data gathered from the Chamber’s Business Monitor surveys carried out between March – June and the Quarterly Economic Survey results for the second quarter of 2020, indicated that a quick ‘V’ shaped rebound was unlikely. We anticipated – and still expect – customer demand to increase gradually over the coming months, making somewhat subdued tick mark or Nike swoosh shaped recovery being a more plausible scenario. Latest GDP data appears to support that view.
We have launched our Recovery Tracker survey to understand how Greater Manchester’s businesses are responding to the reopening. Whilst national data are always released with delays, business responses will enable us to record and analyse both the speed of recovery as well as the impact of government’ business support schemes and those announced during the Chancellor’s summer statement. Please fill in the tracker to contribute to this important piece of research: https://www.surveymonkey.co.uk/r/GMCCBusinessMonitor.