"The rapid increase in output is a reflection of the fact that GDP fell through the floor last year, and we are a still 3.1% below pre-pandemic GDP-levels."
Growth was also lower than the 2.1% and 2.3% growth seen in March and April.
The service sector grew by 0.9% in May, with accommodation and food service activities growing by 37.1% as restaurants and pubs welcomed customers back indoors following the easing of coronavirus restrictions.
The construction sector contracted for a second consecutive month in May 2021, by 0.8%, but remains 0.3% above its pre-pandemic level in February 2020.
Emma-Lou Montgomery, associate director at Fidelity International, commented: “May’s 0.8% growth in GDP slightly edges the economy ever closer to pre-pandemic levels, building on strong gains in March and April. Further relaxation of restrictions, which welcomed punters back to indoor settings, fuelled spending on accommodation and food service activities (by 37.1%) as people relished the chance to get together without having to brave the temperamental English weather.
“While GDP remains 3.1% below its February 2020 level, there is a chance this could be surpassed in the next few months. The outlook remains positive. A sporting summer may not directly cause an ‘it’s coming home’ bounce, but the impact on consumer confidence can’t be ignored. That being said, there are many unknowns ahead. The UK is set on its roadmap to ‘freedom day’ but cases are rising, challenges in the labour market persist and the initial spending boom could slow in pace, all of which might impact growth.
“While policymakers continue to watch how the economic game plays out, indications are that there won’t be any knee-jerk reactions to temporarily strong growth or inflation. It seems the Bank of England will wait for the final whistle before making any decisions on its next play.”
Paul Craig, portfolio manager at Quilter Investors, added: “The UK posted modest GDP growth in May, with output increasing by 0.8% given all but the very highest risk businesses were finally allowed to put an ‘open’ sign on their door. Consumers are responding to the easing of restrictions well, and strong spending in consumer-facing sectors is clearly the engine room of the recovery, although May’s growth is a slowdown compared to the previous two months.
“But there is only so far growth can go. The rapid increase in output is a reflection of the fact that GDP fell through the floor last year, and we are a still 3.1% below pre-pandemic GDP-levels. And much of the spending will be a one-off, particularly in sectors such as home improvements.
“And in the boom there is still some gloom. There’s a danger that the ‘booming’ consumer-facing services sector masks trouble elsewhere. Manufacturing output is flatlining after two consecutive months of modest contractions. Transport equipment fell 16.5% as a result of semi-conductor shortages holding back car production. Construction output is down for another month, no doubt hampered by cement and aggregate shortages, although output has recovered above pre-pandemic levels.
“And then there’s the risk of variants. Things still could turn on a sixpence and all we hear about in the press is the rising case numbers and how things will play out once ‘freedom day’ is upon us. We are throwing caution to the wind and nobody knows how consumers will react. The surging case numbers and lack of mask wearing may well just encourage them to stay at home, out of choice this time around. Only time will tell.”
