Coronavirus: UK’s economic recovery disappointing but there’s reasons for optimism

It’s official: the recovery got underway in May and it lacked bounce.

The economy grew by 1.8% in a month that saw car factories restart production, labourers walk back on to building sites and estate agents pick-up their phones.

Analysts were expecting growth to be far more punchy, the consensus was 5%.

The Bank of England has been telling us that it believes the recovery started earlier and is stronger than it had been expecting.

All things considered, the performance in May is disappointing.

By the end of the month the economy was 24.5% smaller than it was in February.

There’s a lot of lost ground that needs to be made up.

The manufacturing and construction sectors showed signs of a quickening pulse in May but growth in the services sector - the largest - was feeble.

Of course, the lockdown didn’t begin to lift meaningfully until June so there’s every reason to believe things will improve greatly from here.

A graph showing economic growth in the U. Credit: ONS

The collapse in output doesn’t look to have been quite as large as either the Bank of England or the Office for Budget Responsibility had feared but neither does the recovery, so far, look as strong as they’d hoped.

“V-shaped” it isn’t.

At least, not yet.

The idea that the economy will have returned to its pre-crisis size by the end of the year still looks fanciful.

There are, however, reasons to be optimistic.

Car registrations have picked-up, there’s a hustle and bustle to the housing market.

We learned on Tuesday that retail sales in June were higher - yes, higher - than in June last year.

The true pace and shape of recovery has yet to be established.

The Bank of England’s chief economist, Andy Haldane, reckons things will go one of two ways from here.

In one direction lies higher spending and lower unemployment.

In the other, higher unemployment and lower spending.

It’s too soon to know which path we’re one.

The biggest short-term danger to the recovery is surely the winding-up of the chancellor’s furlough scheme, which begins to tail off next month.

A table showing the breakdown of GDP growth in the UK by month. Credit: ONS

Much depends on the behaviour households and businesses which is impossible to predict with any confidence.

There’s evidence of pent-up demand and determination to spend money but many people are understandably anxious about their job prospects and more inclined to be thrifty.

And then there’s the virus.

The strength of the recovery will be determined by how successful the government is at keeping infection rates low.

The Bank of England is set to fire up the money printing presses once more on Thursday as the coronavirus crisis continues to hammer Britain Credit: Jonathan Brady/PA

“The UK economy is unlikely to return to close to its pre-Covid economic path until a vaccine or treatment is found,” says James Smith of the Resolution Foundation, a think tank.

It’s hard to disagree.