There are growing concerns about a slowdown in the UK economy as it unexpectedly contracted in April, according to official figures released on Monday. This news comes just days before the Bank of England’s announcement on how it will respond to rising inflation with its interest rates. The Office for National Statistics reported a shrinkage of 0.3% in gross domestic product (GDP) from March, which surprised economists who had predicted a growth of 0.1% for April. This is the first time since January last year that all main economic sectors had a negative contribution to monthly GDP.
However, the Office for National Statistics pointed out that if the impact of the government’s reduction in coronavirus test-and-trace and vaccination programs is excluded, GDP would have actually grown by 0.1%. Over the three months leading up to April, GDP increased by 0.2%, a significant slowdown compared to the 0.8% growth seen in the previous three months. A Reuters poll had expected the February-April period to show growth of 0.4%.
The Office for National Statistics highlighted that increased production costs were a major factor affecting businesses. It was anticipated by some economists that the impact of rising domestic power tariffs and increased taxes on workers, introduced in April, would only be reflected in the May GDP data.
Amid concerns over a global economic slowdown, UK Finance Minister Rishi Sunak acknowledged that Britain is not immune to these challenges. He attributed the economic pressures to surging inflation and the consequences of Russia’s invasion of Ukraine. However, the Organisation for Economic Co-operation and Development (OECD) recently predicted that British GDP would grow by 3.6% this year but remain stagnant at 0.0% next year, making it one of the weakest forecasts for 2023 among countries in the Group of 20, except for Russia.
Despite these concerns, it is expected that the Bank of England will raise interest rates for the fifth time since December later this week. The bank has projected that inflation will exceed its target at 10% in the final quarter of the year. Many investors and economists anticipate a quarter percentage-point rate hike. In addition, separate trade data released by the Office for National Statistics showed the impact of sanctions on Russia, with exports to the country at their lowest level since January 1999 and imports at their lowest since March 2004.
