Image Source: CU Insight
Fears about the UK economy’s prospects have intensified since it shrank once more in April, with firms suffering the effects of rising costs.
According to the Office for National Statistics, the economy declined by 0.3 percent in April after contracting by 0.1 percent in March.
The April figure was lower than predicted, marking the first time the economy shrunk for two months since the Covid disaster.
The United Kingdom, according to some observers, is on the verge of entering a recession.
Prices are rising at their quickest rate in 40 years, affecting both households and businesses, thanks to record-high fuel and energy expenses.
The cost of filling up a typical family car with gasoline just surpassed £100, and there are indicators that individuals are cutting back on their spending as expenses climb.
The Bank of England has warned that the UK is on the verge of a “sharp economic slowdown,” with inflation – the rate at which prices grow – expected to exceed 10% by the end of the year.
All three major economic sectors – services, manufacturing, and production – shrank in April for the first time since January 2021.
According to the ONS, the main cause of April’s contraction was the NHS’s Covid Test and Trace operation being phased down. However, it also stated that some companies were still dealing with the effects of price hikes and supply chain shortages.
JJ Foodservice is a wholesale food and catering company that provides schools and private customers with food goods and ingredients from restaurants and takeout.
Energy prices and talent shortages are harming firms, according to Kaan Hendekli, the firm’s Head of Operations, but the price of gasoline is having the most impact because “it touches everything,” he told the BBC.
Melanie Baker, a senior economist at Royal London Asset Management, said the UK was “at increased danger of a technical recession,” defined as a contraction in the economy for two consecutive three-month periods.
The CBI’s director-general, Tony Danker, predicted “very much stagnation” in the economy.
Due to the government’s newly announced support package, which includes a £400 energy bill discount for all UK households, a recession “remains unlikely,” according to Samuel Tombs of Pantheon Macroeconomics.
Chancellor Rishi Sunak responded to the latest GDP figures by saying that the UK was not immune to global economic shocks but that the government was “fully focused on growing the economy to address the cost of living in the longer term while supporting families and businesses with the immediate pressures they’re facing.”
Rachel Reeves, Labour’s shadow chancellor, described the findings as “very worrisome” and said they will “add to mounting disquiet about the Conservatives’ terrible growth and declining living standards.”
The drop in GDP (Gross Domestic Product) in April was worse than expected, although it is to be expected given the circumstances.
This month saw a record 54 percent increase in home energy bills, as well as continued pressure at the pumps, National Insurance increases, and the persistent uncertainty surrounding Russia’s invasion of Ukraine.
According to government sources, the economy would have risen almost as much if it hadn’t been for the one-time effect of the pandemic test and trace services being phased down. By that logic, a number of earlier GDP estimates were similarly inflated.
There has been no growth for the third month in a row. This year’s UK economy has only expanded since January. Although May is expected to buck the trend, the GDP is likely to decrease this quarter.
Opinions expressed by California Gazette contributors are their own.