Britain’s economy unexpectedly shrank in April, official figures showed today, adding to fears of a sharp slowdown just three days before the Bank of England is to announce the scale of its latest rate response. interest on rising inflation.
Gross domestic product contracted 0.3% after falling 0.1% in March, the first consecutive declines since April and March 2020, at the start of the coronavirus pandemic.
Economists polled by Reuters on average expected GDP to grow 0.1% in April from March.
GDP would have expanded by 0.1% excluding the impact of a reduction in government coronavirus testing and tracing and vaccination programmes, the Office for National Statistics said.
But it was the first time since January last year that all major economic sectors shrank.
For the three months to April, GDP rose 0.2%, below the Reuters poll forecast of 0.4% and a sharp slowdown from 0.8% growth in the three months to March.
Many companies said increases in the cost of production had affected their business, the ONS said.
Martin Beck, chief economic adviser at EY ITEM Club, a forecasting group, said the data was a poor launching pad for the second quarter, which was at greater risk of showing a small contraction over the three months.
Growth is likely to pick up in the third quarter, so the chances of a second consecutive quarterly drop in GDP (the traditional definition of a technical recession) looked low.
“But growth prospects are dim. An already serious squeeze on household purchasing power will be negatively affected by the inflationary impact of global supply chain frictions and recent sterling weakness,” Beck said.
Finance Minister Rishi Sunak, who last month announced additional support for households and is expected to do more later this year, said Britain was not alone in facing the blow of rising inflation and the fallout from the Russian invasion of Ukraine.
“Countries around the world are experiencing slowing growth and the UK is not immune to these challenges,” it said in a statement.
Last week, however, the Organization for Economic Co-operation and Development said the British economy would show no growth next year, the weakest forecast for 2023 of any Group of 20 country, with the exception of hard-hit Russia. for the sanctions.
On Monday, the Confederation of British Industry warned of a stagnation and possible recession.
Despite the slowdown, the BoE is expected to raise interest rates for the fifth time since December on Thursday.
It has forecast that inflation will exceed 10% in the last quarter of the year, five times its target.
Most investors and economists expect another quarter percentage point rate hike this week, taking the bank rate to 1.25%, its highest level since 2009.
Economists said there was some encouraging news in Monday’s GDP data, including a 2.6% rise in consumer-facing services such as hairdressing and the personal care industry. The retail sector also grew by 1.4%.
But April’s jump in domestic energy tariffs and an increase in taxes paid by workers introduced that month are likely to compress living standards and the broader economy.
Separate trade data released by the ONS showed the impact of the sanctions on Russia with exports to the country falling to the lowest monthly value since January 1999, and imports to the lowest value since March 2004.
With energy costs soaring, Britain imported 9.8 billion pounds of fuel in April alone, the highest level since records began in 1997 and accounting for around a fifth of all goods imports.