The economy shrank unexpectedly in March, causing the specter of a full-blown recession later this year caused by rising cost of living.
According to the Office for National Statistics, the UK’s GDP fell by 0.1 percent in the month, as concerned families restrained their spending and consumer confidence fell sharply.
It came at a time when Boris Johnson and Rishi Sunak seemed to have weakened their opposition to an unexpected tax on energy giants to help poor families cope with their bills. The unexpected March turnaround in GDP means production rose just 0.8 percent in the first three months of the year, despite lifting almost all of Covid’s remaining restrictions in February.
Russia’s invasion of Ukraine and the sharp rise in energy and food bills that followed the pandemic quickly halted the post-pandemic offensive.
The fall in GDP frightened the city, which expected small growth, and the index of shares of leading companies FTSE-100 fell by 161.2 points or 2.2 percent to 7,186.5 at the beginning of trading.
The pound also fell, falling to its lowest level in two years against the dollar in one step and to a seven-month low against the euro.
Chancellor Mr Sunak said: “The UK economy has recovered quickly after the worst pandemic and our growth in the first few months of the year has been strong, faster than the US, Germany and Italy, but I know these are still troubling times.
“Our recovery is hampered by Putin’s barbaric invasion of Ukraine and other global problems, but we continue to help people where we can.”
But urban economists said the main trend in GDP was “alarmingly weak” and warned of a growing risk of recession – two consecutive quarters of negative growth – in spring and summer.
Paul Dales, chief economist at the British office of Capital Economics, said: “It now seems that GDP will shrink in the second quarter. And due to the fact that the cost of living crisis is not yet felt, the chances of recession have only increased. Although price pressures are still mounting, the Bank of England may have no choice but to exacerbate household woes by further raising interest rates. ” A breakdown of the figures shows that car retail and sales have suffered the most in the sector with production falling by 2.8 percent.
In general, the dominant services sector, which accounts for 80 percent of GDP, shrank by 0.2 percent over the month. Production, which includes manufacturing, also fell 0.2 percent and construction rose 1.7 percent.
This year, consumers are facing the biggest decline in real incomes since the 1950s, as inflation is rapidly outpacing wage growth. Next week’s inflation figures from the ONS are expected to show that the consumer price index in April exceeded eight percent for the first time in more than 30 years. Boss John Lewis today became the industry’s last captain to call for urgent response to the scale of the response before energy bills rise further in the fall.
Speaking at the Peston show on ITV, Lady Sharon White said: “I think action needs to be taken by the summer … I thought the government did an incredibly good pace and scale during Covid, I think we need to see the same determination actions taken quickly and at a pace ”.
The Prime Minister has remarkably repeatedly stopped from excluding the accidental tax on energy giants during a radio interview this morning.
This came after Bernard Looney, BP’s chief executive, said her investment plans would not suffer from the unexpected income tax. Mr Johnson headed the Cabinet in Stoke-on-Trent as the government sought to reduce the burden of bureaucracy, such as the cost of passports and driving licenses. He is under increasing pressure to introduce a tax on windfall income to pay for relief measures for millions of people struggling with their finances.