The UK economy shrank again in April, upsetting economic forecasts predicting a slight rise, amidst rises in inflation and the overall cost of living.
Monthly figures released by the Office for National Statistics (ONS) showed a 0.3% fall in GDP – the standard measurement of an economy’s size – in April. According to economists polled by Reuters, the economy was expected to grow by 0.1%, excluding the impact of the reduction in the track-and-trace service.
The ONS report follows hard on the heels of the OECD’s downward revised forecast last week for UK growth in 2022, from 4.75% to 3.64%, while it predicts growth will flatten to zero in 2023 due to high inflation and depressed consumer demand.
Export and import rises
Also in April, ONS International Trade statistics showed that both imports and exports of goods, excluding previous metals, rose by 0.7% and 7.4% respectively. EU exports also increased for the third consecutive month in April 2022.
Overall increases to exports were mostly driven by machinery and transport equipment to both EU and non-EU countries and fuel exports.
Total exports of goods, excluding precious metals, increased by £2.2 billion (7.4%) in April 2022 compared with March 2022. This was driven by a £1.2 billion (8.1%) increase in exports to EU countries, while exports to non-EU countries increased by £0.9 billion (6.5%).
Total imports of goods, excluding precious metals, increased by £0.4 billion (0.7%) in April 2022 compared with March 2022. Imports from EU countries increased by £1.1 billion (4.2%), while imports from non-EU countries fell by £0.7 billion (2.6%).
Trade growth hopes
The CBI stated that it expected trade to contribute positively to the UK’s GDP growth after a slow Q1 start.
Rain Newton-Smith, CBI chief economist, said: “Government has an integral role to play. Against the backdrop of the rising cost of doing business and continuing supply chain pressures, easing trade flows is in everyone’s interests. It’s not just about lowering non-tariff trade barriers in Europe and signing FTAs.”
The CBI further called on the government to deal with the impasse at the Northern Irish border, address labour concerns and build momentum on “essential” British investment ahead of the autumn statement.
Key sectors shrink
April was the first time all key sectors of the UK economy - services, manufacturing and production - had shrunk since January 2021, the BBC reported. The ONS said the contraction was mainly due to a drop in health sector performance due to the ending of free Covid tests.
The fall was the first back-to-back decline in UK GDP since the beginning of the Covid-19 outbreak. Overall, however, GDP is still 0.9% higher than it was pre-pandemic.
As reported to the BBC, Chancellor Rishi Sunak said: "I want to reassure people [that] we're 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."
“Common Themes”
The ONS reported that many firms were experiencing difficulties with production costs, citing cost of fuel, utilities or input goods as contributing factors.
There was a fall in growth across all main sectors for the first time since January 2021.
The Independent cited unnamed experts stating that the UK economy now faced a “cocktail of challenges” caused by Brexit, with the possibility of the situation deteriorating as EU trade relations worsen.
This comes at a time when consumer prices are rising at their fastest level for 40 years and are the highest in the G7, according to the FT.
Larry Elliot, the Guardian’s economics editor, warned of an increased risk of stagflation after today’s figures were released.