Breaking: The UK economy shrank in April, for the second month running.
GDP declined by 0.3% in April, adding to the 0.1% drop in March — with services, production and construction all shrinking in April.
The Office for National Statistics reports that the reduction in NHS Test and Trace activity weighed on the economy, while supply chain problems hit factories.
The ONS says:
- Services fell by 0.3% in April 2022 and these were the main contributors to April’s fall in GDP, reflecting a large decrease (5.6%) in human health and social work, where there was a significant reduction in NHS Test and Trace activity.
- Production fell by 0.6% in April 2022, driven by a fall in manufacturing of 1.0% on the month, as businesses continue to report the impact of price increases and supply chain shortages.
- Construction also fell by 0.4% in April 2022, following strong growth in March 2022 when there was significant repair and maintenance activity following the storms experienced in the latter half of February 2022.
- This is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021.
The cost-of-living crisis has dragged business optimism to its lowest point in more than a year, accountancy firm BDO reports this morning.
BDO’s optimism index has fallen by 4.82 points to 101.93, the second consecutive month of decline, as bosses worry about continued inflationary pressure and supply chain disruption in the months ahead.
BDO partner Kaley Crossthwaite said:
“The fact that business optimism is now at the same level it was more than a year ago while the country was still experiencing coronavirus restrictions paints a worrying picture for the UK economy.
“Weakened consumer spending power is undoubtedly weighing heavily on businesses and will continue to curtail growth in the months ahead.”
The CBI has warned the government that its threat to override the Northern Ireland protocol is forcing companies to think again about investing in Britain and dragging down the economy.
Tony Danker, the director general of the CBI, said reaching a deal was in the best interests of the British economy as businesses and households struggle with the soaring cost of living and looming risk of recession.
“I don’t think it’s time for grandstanding; I think it’s time to do a deal. I’m firmly of the view the Europeans are being inflexible. At the same time, our measures – which may come on Monday – to take unilateral action in response are unhelpful.”
The head of the lobby group, which represents 190,000 companies across the UK, said renewed Brexit uncertainty triggered by the protocol dispute was hurting the British economy, and leading some companies not to invest in the UK.
Legislation giving ministers power to override parts of the Northern Ireland Protocol is due to be published in the House of Commons on Monday afternoon.
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
We’re about to get a new healthcheck on the UK economy this morning as April’s GDP report is released.
The data, due at 7am BST, comes amid concerns that Britain could be heading towards recession, as the cost of living crisis hits households and businesses.
Analysts fear the report will show a weak economy.
Alvin Tan of RBC Capital Markets sets the scene:
The UK April GDP release today will capture the direct output impact of the ending of the UK’s Covid test-and-trace programme. We think that this will subtract around 0.6ppts from m/m GDP growth in April.
Even allowing for some growth in private sector activity, we still see monthly GDP growth of -0.4%. We currently see GDP growth flat for Q2 as a whole, but a larger-than-expected contraction in April would be difficult to claw back in subsequent months given the June holidays.
And here’s Michael Hewson of CMC Markets:
The latest GDP numbers for April are expected to show a weak economy, battered by the big jump in energy prices, with the index of services forecast to grow by 0.1%, after declining -0.2% in March.
The headline monthly number, which showed a fall of -0.1% in March, will be lucky if we show any growth at all in April, while on a three-monthly basis we can expect to see a decline from 0.8% to 0.4%.
The CBI, which represents British businesses, is today calling for the government to get a grip on the economy, warning that UK households will fall into a recession this year.
It has downgraded its GDP growth forecasts to 3.7% in 2022 (from 5.1% previously) and 1.0% in 2023 (from 3.0% previously).
It also fears household spending will shrink next year amid dented business and consumer confidence.
Director general Tony Danker said the Prime Minister and Chancellor had to take urgeng action to support growth, including supporting business investment and tackling labour shortages in industries such as aviation.
Let me be clear – we’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession. And even if we don’t, it will feel like one for too many people.
“Times are tough for businesses dealing with rising costs, and for people on lower incomes concerned about paying bills and putting food on the table.
Wider recession fears are also roiling markets, after the US inflation rate hit a new 40-year high of 8.6% on Friday.
That sent stocks reeling in Europe and on Wall Street at the end of last week, and Asia-Pacific markets have followed – with Japan’s Nikkei sliding almost 3%.
European stock markets are set for further losses today:
- 7am BST: UK GDP report for April
- 7am BST: UK balance of trade for April
- 11am BST: NIESR’s monthly GDP tracker for May
- 1pm BST: India’s inflation rate for May