Fears over the prospects for the UK economy have grown after it shrank again in April, with businesses feeling the impact of rising prices.
The economy contracted by 0.3% in April after it shrank by 0.1% in March, the Office for National Statistics said. April’s figure was weaker than expected, and it was the first time the economy has contracted for two months in a row since Covid struck.
Some analysts have warned the UK risks falling into a recession.
Both households and businesses have been hit by rising prices, which are surging at their fastest rate for 40 years due to record-high fuel and energy costs.
The cost of filling up an average family car with petrol recently hit £100, and there have been signs that people are cutting back spending as costs rise.
The Bank of England has warned the UK faces a “sharp economic slowdown”, and has forecast that inflation – the rate at which prices rise – could reach more than 10% by the end of the year.
April was the first time all main sectors of the economy – services, manufacturing and production – had shrunk since January 2021.
The ONS said the main driver of April’s contraction was in the services sector, due to the winding down of the NHS’s Covid Test and Trace operation.
It also said some businesses were continuing to struggle with the impact of price increases and supply chain shortages.
Melanie Baker, senior economist at Royal London Asset Management, said the UK looked “at increased risk of a technical recession”, which is defined as the economy contracting for two consecutive three-month periods.
Tony Danker, director-general of the CBI, said the business group was “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,” he added.
“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.”
But Samuel Tombs, of Pantheon Macroeconomics, said a recession “remains unlikely”, due to the government’s recently announcement support package, which includes a £400 energy bill discount for all UK households.
Responding to the latest GDP figures, Chancellor Rishi Sunak said the UK was not immune from global economic shocks, but added the government was “fully focussed 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”.
Source: bbc.com
