Yahoo Finance UK economy to expand modestly in April but inflation concerns remain
The UK economy is set to have modestly expanded in April, however, higher interest rates and persistent inflation is likely to keep growth from expanding much over the next year.
According to Deutsche Bank (DB), April’s growth is expected to come in at 0.2% compared to the previous month, after a surprise contraction in March.
It pointed to more services output driving the rise in activity, as some of the drag from industrial action unwinds. The lender added that consumer facing services will also lead the rebound.
The report said: “We also see construction output expanding a little (0.3% month-on-month). The one drag to GDP will likely come from industrial production, which we expect will see broad based weakness from energy, water, oil, and manufacturing production.”
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Meanwhile, KPMG reported that the UK will avoid a recession this year, as energy prices retreat and supply chain disruption falls. It forecast that GDP will rise by 0.3%.
Germany and Ireland have both already fallen into a technical recession this year, which is defined as recording two consecutive quarters of negative growth.
Last week it was reported that the eurozone fell into a recession at the start of this year as an ongoing cost of living crisis continues to pressure households.
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According to revised data from Eurostat on Thursday, gross domestic product (GDP) across the bloc was revised down to a contraction of 0.1%, downgraded from a previous estimate that the economy stagnated.
Yael Selfin, chief economist at KPMG UK, said “The UK economy has so far avoided a technical recession. But risks are still elevated. A stickier inflation will see monetary policy tightening even further, increasing the risk of unwelcome side effects, among other potential headwinds.”
Deutsche Bank echoed this forecast, with forecasts of UK gross domestic product to expand by 0.3% this year, with a more sluggish growth trajectory in 2024, and the year after.
“We still see sluggish growth in Q2 and beyond, with GDP likely to pull in reverse in Q2 at -0.1% quarter-on-quarter (owing mainly to the extra May Bank holiday).
“Indeed, a tighter monetary policy stance will likely offset any pick up in real disposable incomes as inflation softens over the coming quarters. And equally, a global growth slowdown will drag on UK GDP, with exports likely to take a hit.
“With central banks everywhere remaining resolute in bringing inflation back to target, we think that the chances of a hard landing will likely increase as we get to year end.”
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It comes as British households and businesses are set to feel more financial pressure with the Bank of England (BoE) expected to raise the base interest rate three more times this year.
The rate, which is currently at 4.5%, is expected to hit a peak of 5.25% later this year in a bid to tame the stubbornly high rate of inflation.
Rain Newton-Smith, the CBI’s new director general and previously its chief economist, said: “Businesses and consumers alike will be relieved that the UK economy has avoided recession and will re-enter growth territory in the second half of this year. But firms want to see growth – and productivity – pick up pace. We want to see the UK at the top of the global league tables once again.”
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