UK growth slows as computer chip shortage hits auto industry | Economic growth (GDP)

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

It was the fourth consecutive month of GDP growth, and followed a 2% growth in April, but the slowdown in May was more pronounced than expected after economists in the city predicted an increase of 1, 5%.

The Office for National Statistics (ONS) said the manufacturing industry was hit by a computer chip shortage that has forced automakers to cut production.

As a result, the manufacturing of transportation equipment fell 16.5%, its biggest drop since April 2020 and the worst period of the coronavirus pandemic.

Wood and steel shortages crippled many construction projects and caused the construction sector to contract 0.8% for a second consecutive month.

In the three months ending in May, GDP grew 3.6%, mainly due to the strong retail sales during the period as non-essential shops, bars and restaurants opened.

The ONS said the broader service sector is growing as Covid-19 restrictions continue to ease, more people return to work and more students attend school .

The service sector rose 0.9% in May, driven by a 37.1% increase in accommodation and food services, with restaurants and pubs once again welcoming customers indoors.

“Despite the growth in consumer services, it is travel, transportation and other personal services that continue to help keep production below pre-pandemic levels,” the ONS said.

Quick guide

Why is there a global shortage of computer chips?

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The global shortage of semiconductors, the microchips that are an essential component of all electronic devices around the world, began as a temporary delay in supplies as chip factories shut down when the coronavirus pandemic first struck. time.

However, as factory production returned to normal, the shortage turned into a global crisis, with a further surge in demand leading companies to struggle to secure the limited supplies entering the market.

Apple, the world’s largest semiconductor buyer – spending $ 58 billion a year – was forced to delay the iPhone 12 launch by two months last year due to the shortage. Sony has warned that it may not meet sales targets for the new PS5 console this year due to chip supply issues, and Samsung, the world’s second-largest producer and consumer of chips, said that it could have to postpone the relaunch of its top of the range. smartphone.

However, the sector hardest hit has been the global auto industry. Automakers are relatively new to the semiconductor industry, as investments in high-tech electric vehicles increase, and have found themselves at the back of the supply pack. The biggest auto players, Toyota and Volkswagen, spend around $ 4 billion a year on chips, making them relative minnows in the supply chain.

Ford has been forced to set off shifts at two auto factories and said profits could reach $ 2.5 billion this year, Nissan is slowing production at some plants in Mexico and the United States, and General Motors warned of a profit of $ 2 billion.

The battle over chip supply has also raised government concerns. Earlier this week, Boris Johnson said the UK government would step in to consider the purchase of Britain’s largest semiconductor producer by a Chinese manufacturer, under the new 2021 National Security and Investment Act. designed to protect major infrastructure companies from foreign takeovers.

The shortage is expected to last until 2023, as new chip factories are very complex to build and take up to two years to become operational.
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The economy was 3.1% smaller in May than it was in February 2020, before the pandemic.

Samuel Tombs, chief economist at Pantheon Macroeconomics, said GDP growth is likely to slow further over the summer. “A series of indicators suggest that economic activity stabilized in June. This probably reflects in part the weakening of some initial enthusiasm when businesses reopen.

“The rise in Covid-19 infections also appears to be prompting some people to return to work from home and to visit stores and places of services less frequently. In addition, the UK’s self-isolation rules are increasingly limiting the supply of labor, ”he said.

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Rishi Sunak said government support for the economy kept him going until May.

“Our unprecedented support package – including business loans, the holiday scheme and a reduced VAT rate for the hospitality and tourism sectors – has protected millions of jobs and helped businesses survive pandemic, ”said the Chancellor.

“And with the number of people on leave halved in just three months as the economy reopens, it’s clear our jobs plan is working.

“The government continues to support the recovery, with the leave program in place until September and programs like Restart helping people who have sadly lost their jobs get back to work.”

TUC General Secretary Frances O’Grady said: “The Chancellor must respond to slowing growth to sustain the recovery. Cutting back on family support and cutting back on employer support too soon are big risks. He is expected to reverse the £ 20 reduction in universal credit and delay the increase in employers’ contributions to the leave scheme. “

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