Economy flirting with recession as growth slows
Britain could be heading towards recession as new data showed the economy grew by just 0.8% between January and March, down from 1.3% in the previous three months. Gross domestic product (GDP) fell by 0.1% in March.
Investors took flight when the latest data was released early this morning. At noon the FTSE 100 was trading 150 points (2.03%) lower at 7,198.35, after falling 177.62 points when the market opened.
Chancellor Rishi Sunak said growth in the first few months of the year was “strong, faster than the US, Germany and Italy”, but opposition parties and businesses again called for further help.
The British Chambers of Commerce head of economics Suren Thiru said the Bank of England’s recent decision to raise interest rates “continues to look like a misstep” and repeated the BCC’s call for an emergency budget.
Darren Morgan, director of economic statistics at the Office for National Statistics (ONS), said: “The UK economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year.
“This was driven by growth in a number of service sectors as the economy continued to recover from Covid-19 effects, including hospitality, transport, employment agencies and travel agencies. There was also strong growth in IT.”
He added: “Our latest monthly estimates show GDP [gross domestic product] fell a little in March, with drops in both services and in production. Construction, though, saw a strong month, thanks partly to repair work after the February storms.”
Mr Sunak said: “The UK economy recovered quickly from the worst of the pandemic and our growth in the first few months of the year was strong, faster than the US, Germany and Italy, but I know these are still anxious times.
“Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can.
“Growth is the best way to help families in the longer-term so as well as easing immediate pressures on households and businesses, we are investing in capital, people and ideas to boost living standards in the future.”
Mr Thiru at the BCC said that against a backdrop of “surging inflation, soaring energy bills and higher taxes…suppressing consumer spending and business investment… the Bank of England’s recent decision to raise interest rates continues to look like a misstep.”
He added: “An emergency budget is urgently needed to give firms the breathing space they need to raise productivity and strengthen the economy, including reversing the recently introduced National Insurance increase until at least the next financial year.”
Laith Khalaf, head of investment analysis at AJ Bell, said:” “The UK economy has now recovered to its pre-pandemic level, but momentum seems to be ebbing away, and recessionary forces are gathering.
“What is more concerning is that almost all of the growth was registered in January, and March actually saw a 0.1% fall in GDP.
“The central bank is raising rates to try to take some of the steam out of the labour market, to prevent an inflationary wage spiral, but clearly there is a risk the rate setting committee pushes too hard.”
Martin Beck, chief economic adviser to the EY ITEM Club, believes a recession is still avoidable despite added pressures in the economy.
“The economy faces two more hurdles in Q2 – the extra bank holiday for the Queen’s Platinum Jubilee and the likelihood of a fall in health output following the end of free COVID-19 testing.
“The EY ITEM Club expects these factors to cause near-stagnation in GDP in Q2, although with Q3 having a full quota of working days, output should quickly rebound.
“While the EY ITEM Club thinks a recession this year is unlikely, growth will struggle.”
Rachel Reeves, Labour’s Shadow Chancellor, said:“Today’s GDP figures will add to the worries families already face as prices soar and pay packets are crunched.
“That the Chancellor ignored serious warnings undermines any claim he couldn’t have done more to protect the British economy from soaring inflation.
“The Government’s Queen’s Speech this week was out of ideas and out of touch, devoid of any real economic plan for growth or to tackle the cost of living crisis.
“Anything less than coming back urgently with an Emergency Budget to help ease the pressure from the cost of living crisis is a failure by this Conservative government.”