"Technically, we may not yet be in a recession, but for many consumers it certainly feels like one."
Services fell by 0.3% in April 2022 and these were the main contributors to April's fall in GDP, reflecting a large decrease (5.6%) in human health and social work, where there was a significant reduction in NHS Test and Trace activity.
Production fell by 0.6% in April 2022, driven by a fall in manufacturing of 1.0% on the month, as businesses continue to report the impact of price increases and supply chain shortages.
Construction also fell by 0.4% in April 2022, following strong growth in March 2022 when there was significant repair and maintenance activity following the storms experienced in the latter half of February 2022.
This is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021.
George Lagarias, chief economist at Mazars, commented: “UK GDP was negative, -0.3% for the second straight month in April. The number should come as no surprise, as a dismal retail sales number had already set the tone for the month, falling at a pace comparable only to the first lockdown in 2020. For an economy where consumption is so central, the signs going forward are disconcerting. Technically, we may not yet be in a recession, but for many consumers it certainly feels like one. Faced with a once-in-a-generation cost-of-living crisis, consumers are curtailing unnecessary expenses fast, causing a demand shock to the market.
"Where we go from here is not a matter of forecasting but of policy decisions by the government and the Bank of England. Policymakers are between the proverbial rock and a hard place. There are no easy solutions. Will they wait for inflation to come down first, risking a broad recession before they react, or will they attempt to alleviate some pressures on consumers, risking a deeper and more persistent inflation?”
Paul Craig, portfolio manager at Quilter Investors, said: “GDP for April shows the UK economy continues to splutter, missing expectations and showing negative growth of 0.3% for the month. While a recession is still a while away, it is looming on the horizon and its effects will begin to be felt in the UK well before we are officially in one. Contraction in services was the main driver of the fall in monthly GDP growth, but manufacturing and production continues to struggle with rising prices and supply chain shortages. With this data reflecting April’s economy, the real picture today is likely to be event starker.
“Despite weakening economic growth, the Bank of England this week is expected to raise rates further as it seeks to get inflation under control and looks to be seen to be doing something. However, as the BoE has pointed out in the past, much of this is inflation is out of its control and as such it is going to be an incredibly difficult task to guide the economy through this volatile and uncertain period. This could ultimately get even more difficult with Brexit tensions rising to the fore once again, while the strong dollar is making any attempt to revive sterling a tough one.
“With sterling sitting where it is just now things are unfortunately going to get worse before they get better. Just as with the pandemic response two years ago, fiscal and monetary policy is going to have to work hand in hand. This could mean we see the BoE reversing course later on this year as the true extent of the economic damage reveals itself.”
