Image Source: CU Insight
Fears about the prospects of the UK economy have intensified since it contracted again in April, with firms feeling the pinch from rising costs.
According to the Office for National Statistics, the economy dropped by 0.3 percent in April after shrinking by 0.1 percent in March.
The April figure was lower than predicted, marking the first time the economy shrunk for two months since Covid.
According to some observers, the United Kingdom is on the verge of entering a recession.
Rising prices have impacted both individuals and businesses, with prices increasing at their quickest rate in 40 years due to record-high fuel and energy expenses.
The cost of filling up a typical family car with petrol just surpassed £100, and there are hints that consumers 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 reach more than 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.
The main cause of April’s contraction, according to the ONS, was the shutting down of the NHS’s Covid Test and Trace operation. However, it also stated that some businesses were still dealing with the effects of price hikes and supply chain difficulties.
JJ Foodservice is a wholesale food and catering company that serves 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 he says the price of gasoline is having the most impact since “it affects everything.”
The UK economy is “at increased risk of a technical recession,” according to Melanie Baker, a senior economist at Royal London Asset Management. A technical recession is an economy contracting for two consecutive months.
The CBI’s director-general, Tony Danker, stated that the business group “expects the economy to be pretty much static.”
However, thanks 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.
In response to the latest GDP figures, Chancellor Rishi Sunak stated that the UK was not immune to global economic shocks but that the government was “fully focused on growing the economy in the longer term to address the cost of living while supporting families and businesses with the immediate pressures they’re facing.”
Rachel Reeves, Labour’s shadow chancellor, said the results were “very troubling” and will “add to mounting disquiet about the Conservatives’ terrible growth and plunging living standards.”
The drop in GDP (Gross Domestic Product) in April was worse than expected, but it’s unsurprising given the conditions.
This month saw a record 54 percent increase in home energy bills, as well as continuous pressure at the pump, National Insurance increases, and the persistent uncertainty surrounding Russia’s invasion of Ukraine.
According to government sources, the economy would have nearly increased if not for the one-time consequence of the shutdown of pandemic test and trace services. However, several past GDP estimates were inflated using the same rationale.
For the third month in a row, there has been no growth. This year, the UK economy has only increased in January. While May is expected to break the trend, the economy is likely to decline this quarter.