UK slowdown fears rise as GDP unexpectedly contracts in April

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  • British GDP -0.3% m/m in April after -0.1% in March
  • GDP +0.2% over 3 months to April vs +0.8% 3 months to March
  • Reducing COVID-19 programs hits numbers
  • But all sectors are contracting for the first time since January 2021
  • Sunak says the problems are not unique to the UK

LONDON, June 13 (Reuters) – Britain’s economy contracted unexpectedly in April, official figures showed on Monday, adding to fears of a sharp slowdown just three days before the Bank of England announced the magnitude of its latest interest rate response to soaring inflation. .

Gross domestic product contracted 0.3% after falling 0.1% in March, the first consecutive declines since April and March 2020, when the coronavirus pandemic began.

Economists polled by Reuters on average expected GDP growth of 0.1% in April from March.

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GDP would have risen by 0.1% had it not been for the impact of a cut 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 contracted.

In the three months to April, GDP grew 0.2%, weaker than the Reuters poll forecast of 0.4% and slowing sharply from 0.8% growth in the three months until March.

Many companies said increases in production costs had affected their business, the ONS said.

Martin Beck, chief economic adviser at the EY ITEM Club, a forecasting group, said the data was a poor launch pad for the second quarter, which was more likely to show a slight contraction over the three months.

Growth was likely to rebound in the third quarter, so the odds of a second straight quarterly drop in GDP – the traditional definition of a technical recession – looked dim.

“But the outlook for growth is lackluster. Already serious pressure on household purchasing power will be negatively affected by the inflationary impact of global supply chain frictions and the recent weakness of the pound sterling,” said Beck.

SUNAK: IT’S GLOBAL

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 dealing with the blow of the surge 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,” he said in a statement.

Last week, however, the Organization for Economic Co-operation and Development said Britain’s economy would show no growth next year, the weakest forecast for 2023 of any Group of 20 country, at the latest. exception of sanctioned Russia.

On Monday, the Confederation of British Industry warned of stagnation and possibly a recession. Read more

Despite the slowdown, the BoE is expected to raise interest rates for the fifth time since December on Thursday.

It predicts that inflation will exceed 10% in the last quarter of the year, five times its target. Read more

Most investors and economists expect another quarter-percentage-point hike this week, taking the bank rate to 1.25%, its highest level since 2009.

Economists said there was encouraging news in Monday’s GDP data, including a 2.6% rise in consumer-facing services such as the hairdressing and grooming industry. The retail trade sector also rose 1.4%.

But the rise in domestic electricity tariffs in April and an increase in taxes paid by workers introduced that month are likely to reduce living standards and the economy in general.

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 since March 2004.

With energy costs soaring, Britain imported 9.8 billion pounds of fuels in April alone – the highest since records began in 1997 and accounting for around a fifth of all imports from goods.

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Reporting William Schomberg and Andy Bruce; Editing by Kylie MacLellan and Catherine Evans

Our standards: The Thomson Reuters Trust Principles.

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