10:31 am, May 13, 2022
Britain’s economy shrank unexpectedly in March as consumer spending, including in the new car market, fell away dramatically.
The Office for National Statistics (ONS) said GDP fell by 0.1 per cent month-on-month in March after growth stalled in February – revised down from the 0.1 per cent previous growth estimate.
A number of industries reported lower than expected sales, with new car registrations particularly hit.
The SMMT reported the worst March for 24 years after registrations slumped by 14.3 per cent from March 2021.
The theme continued into April, which saw a decline of 16 per cent in a major blow for the economy.
Experts now fear that a recession could be on the way having previously expected growth to remain flat in March.
The data shows the impact of soaring inflation on consumer spending, with retail particularly hard hit.
The ONS said the economy grew at its slowest pace for a year in the first quarter overall, with growth of 0.8 per cent, down from 1.3 per cent in the previous three months.
While the expansion means GDP is now 0.7 per cent above levels seen before the pandemic struck, the figures mark the calm before the storm as warnings grow over a recession in the UK due to the cost-of-living crisis.
The National Institute of Economic and Social Research (Niesr) think tank predicted on Wednesday that the UK will fall into recession, forecasting a GDP contraction in the third and fourth quarters.
Calls are growing for an emergency budget to address the cost-of-living crisis, despite the Government having dismissed the need for further urgent action.
Rain Newton-Smith, chief economist at the Confederation of British Industry, said: ‘The economy barely kept its head above the water during a volatile start to the year, but times look set to get that bit tougher.
‘Cost pressures and rising prices have tightened their grip, with both businesses and households feeling the pinch. The end result is a weaker economic outlook.
‘It is clear that the most vulnerable households and energy-intensive businesses may need further support.’
GDP fell 0.1% in March and is now 1.2% above its pre-pandemic level:
▪️ services fell 0.2% (1.5% above)
▪️ manufacturing fell 0.2% (1.0% below)
▪️ construction grew 1.7% (3.7% above)➡️ https://t.co/Mqngeuf4cb pic.twitter.com/dHSAxXCOfw
— Office for National Statistics (ONS) (@ONS) May 12, 2022
Last week, the Bank of England raised interest rates to a 13-year high of 1 per cent in a bid to curb inflation.
It also warned that the economy is set to stall in the second quarter, before contracting in the final three months and going into reverse overall in 2023.
While the Bank of England says that the UK is set to avoid a technical recession – defined as two quarters in a row of falling GDP – Governor Andrew Bailey said growth will be ‘very weak’.
In a grim set of forecasts, the Bank predicted that household incomes will suffer the second biggest decline on record this year, with inflation expected to peak at more than 10 per cent in October.
Chancellor Rishi Sunak said the UK is facing ‘anxious times’.
The figures showed the declines in March was led by a 0.2 per cent fall in output from the all-important services sector, with consumer-facing services down 1.8 per cent in a sign of the pressure already being felt among households.
Only the construction sector saw expansion in March, thanks in large part to repair work after the February storms, according to the ONS.
