UK recovery slows as bottlenecks offset rebound in hospitality

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The UK’s recovery slowed in May as growth stalled in retail, construction and manufacturing, offsetting a strong rebound in the hospitality and leisure sectors.

The volume of goods and services produced in the UK grew by 0.8 per cent month on month, the Office for National Statistics said, less than economists had expected after an exuberant rebound in April as the economy began to reopen.

That took quarter-on-quarter growth in the three months to May to 3.6 per cent and left economic output 3.1 per cent below its pre-pandemic level, the narrowest gap since the start of the crisis.

But economists said the muted growth in May was disappointing and would add to fears that rising Covid infections will now exacerbate labour shortages, dampen consumer spending and delay the return to pre-Covid levels of activity.

“The recovery is losing a little steam as the temporary boost from the earlier phases of reopening fades,” said Suren Thiru, economist at the British Chambers of Commerce, adding that growth could lose further momentum as Covid-19 infections rose if people became reluctant to interact and staff and supply chain disruption stifled business activity.

The expansion was driven by the reopening of indoor hospitality with the service sector growing 0.9 per cent, fuelled by a 37.1 per cent expansion in accommodation and food service as restaurants and pubs allowed customers back indoors after the easing of restrictions. Arts, entertainment and recreation also grew strongly, the ONS said.

 “It’s great to see people back out and about thanks to the success of the vaccine rollout, and to see that reflected in today’s figures for economic growth,” said Rishi Sunak, chancellor. He added that the government was continuing to support the recovery through the furlough scheme and help for jobseekers. 

However, the rebound in hospitality came partly at the expense of retailers, hitting sales at food stores and leaving total retail sales down 1.4 per cent month on month.

The production sector returned to growth, largely due to bad weather that boosted output in the energy sector, the ONS said. But its performance was weighed down by a 16.5 per cent drop in the manufacturing of transport equipment — due to the global microchip shortages that disrupted car production.

The construction sector contracted slightly, for a second consecutive month, but remained above pre-pandemic levels. Paul Dales, at the consultancy Capital Economics, said this could be due to bad weather, but could also be “an early sign that materials and labour shortages are restraining output”.

The muted pace of growth was “especially disappointing” given that more timely data suggested the recovery had “lost a bit more verve” in June as a result of rising virus cases and the delay to further reopening, he added.

Yael Selfin, economist at KPMG, said the slower pace of growth was to be expected as the recovery matured. She added: “We still expect the economy to run hot over the coming months, with pent-up demand fuelling many industries. However, bottlenecks are already starting to emerge across various sectors — from labour shortages to supply chain pressures — as a result of the speed with which many are keen to reopen.”

Revisions to data for earlier months showed that UK output also fell slightly more in the first quarter — by 1.6 per cent — than previous estimates had shown, with the downgrade due to updated figures on school attendance.

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