"Numbers can be revised but it’s clear the UK faces a serious fight to avoid recession this year."
Services fell by 0.2% on the month and was the main contributor to March’s fall in GDP, reflecting a large decrease (15.1%) in the wholesale and retail trade and repair of motor vehicles and motorcycles industry. Production also fell on the month by 0.2%; these falls were partially offset by construction, which grew by 1.7%.
Hinesh Patel, portfolio manager at Quilter Investors, said: “UK GDP has come in weaker than expected for Q1 and March as the economic toll of inflation begins to bite. January was the only positive month of the quarter as the Russia-Ukraine conflict caused supply chain woes across industrial sectors and compounded to weigh on economic growth.
“Consumer-facing services took a hit in the month of March with a fall of 1.8%, suggesting the public concerns around the cost of living are real but it is potentially too early to read into their behaviour just yet. They may have accumulated a wall of savings during the pandemic but now they could be beginning to hold that money back for impending price rises.
“Ultimately things are only going to get worse for consumers. Energy bills are expected to soar again later this year when the price cap is reassessed, while inflation is proving stickier than expected. The Bank of England has a near impossible task of managing the economy out of this quagmire. They are in aggressive rate raising mode for now, but this cannot remain the case for long given the economic issues already starting to play out. With talk of recessions and weak global growth, they cannot afford to choke the economy to the point where they exacerbate the problem. Nimble monetary policy will be required, something that hasn’t necessarily been on show in the last six months."
Ed Monk, associate director at Fidelity International, commented: “Any momentum the UK economy had as it emerged from the pandemic appears to be ebbing away. Growth in the first quarter of 0.8% was below forecast and is down from 1.3% in the preceding period, and the month-on-month figures now show a worrying slowdown. From growing by 0.7% in January, the economy flat-lined in February and fell slightly in March. Numbers can be revised but it’s clear the UK faces a serious fight to avoid recession this year.
“Soaring energy, fuel and food prices continue to eat into household budgets. And while some are already having to choose between basic necessities, this is unlikely to be the end of the squeeze. With inflation reaching 7%2 households are navigating largely unfamiliar financial territory while also trying to prepare for the likelihood that bills will rise still further.
“Despite government promises this week to address the cost of living challenge, the threat of recession appears to be growing. By the end of the second quarter of 2025 the UK economy is expected to be barely bigger than it is today. The Bank of England has so far been focussed on bringing inflation down in the medium term via rate rises. It must now also factor in an economy at risk of shrinking earlier than it has forecast as well.”
George Lagarias, chief economist at Mazars Wealth Management, added: "GDP rose an estimated 0.8% in Q1, slightly below expectations for a 1% growth. Year on year the economy grew at 8.6%. However, the underlying picture is weak. A return of tourism could be mistaken as real evidence of a post-pandemic normality. But by and large momentum for consumer-facing services is weakening.
"Production and construction also disappointed. Both sectors are suffering from high input costs and wildly unbalanced supply chains. While production might be less important for GDP, it is usually a precursor for services. Currently, consensus forecasts 3.7%-3.8% growth at year end.
"While we believe that the UK economy will probably grow this year, versus the previous one, we expect more economic weakness in the coming months. This is a result of higher interest rates, tax hikes and persistent inflation reducing real income, as well as external pressures due to the general slowdown in the global economy."
