Yahoo Finance UK economy returns to growth with 0.2% expansion in April
The UK economy grew by 0.2% in April, returning to growth despite high inflation, rising interest rates and disruption caused by strikes.
According to the latest figures from the Office for National Statistics (ONS) on Wednesday, gross domestic product (GDP) came in at 0.1% in the three months to April, with the services sector being the main contributor, expanding by 0.3% during the month.
Output in consumer-facing services grew by 1.0% in April, following a fall of 0.8% in March, while production output fell by 0.3% after growth of 0.7% the month before. The data also showed that the construction sector fell by 0.6% in April, following growth of 0.2%.
Bars and pubs had a strong month, while car sales rebounded and education partially recovered from the effect of the previous month’s strikes.
The data revealed that this was partially offset by falls in healthcare, which was affected by the junior doctors strikes, alongside falls in computer manufacturing and the often-erratic pharmaceuticals industry. House builders and estate agents also had a poor month.
The growth in April follows a contraction of 0.3% in March, which was affected by public sector strike action in healthcare and transport.
Monthly UK GDP is now estimated to be 0.3% above its pre-coronavirus levels, set in February 2020, the ONS said.
GDP grew 0.2% in April.
Services were up 0.3% while production fell 0.3% and construction fell 0.6%.
➡️ https://t.co/W8QHWq0Dfe pic.twitter.com/ioghafFZyI— Office for National Statistics (ONS) (@ONS) June 14, 2023
“We are growing the economy, with the IMF saying that from 2025 we will grow faster than Germany, France and Italy," Jeremy Hunt, chancellor of the Exchequer, said. "But high growth needs low inflation, so we must stick relentlessly to our plan to halve the rate this year to protect family budgets.”
The UK inflation rate currently stands at 6.2% in the year to April, up from 5.7% in March, which is the highest rate since February 1992.
Michael Hewson, chief market analyst at CMC Markets, said: “So far this year the UK economy has held up reasonably well, defying the doomsters that were predicting a 2-year recession at the end of last year. As things stand, we aren’t there yet, unlike Germany and the EU who are both in technical recessions.
“Sharp falls in energy prices have helped in this regard, and economic activity has held up well, with PMI activity showing a lot of resilience, however the biggest test is set to come given that most mortgage holders have been on fixed rates these past two years which are about to roll off.”
Read more: Bank of England was wrong about furlough's impact on inflation – Bailey
The Bank of England (BoE) is likely to be forced to raise interest rates three times over the next year, as inflation is still much higher than their 2%. This will pile further strain on an already ailing economy, ultimately pushing growth down.
Mortgage rates already climbed again last week after a higher predicted interest rate peak, and around 1.4 million fixed rate deals are set to come to an end this year.
Yesterday, Andrew Bailey, governor of the Bank of England, warned that inflation was “taking a lot longer” than hoped to come down.
He told the House of Lords economic affairs committee: “We still think the rate of inflation is going to come down, but it’s taking a lot longer than we expected.”
Marcus Brookes, chief investment officer at Quilter Investors, said: “There will be a huge amount of strain placed on people’s monthly outgoings. This will ultimately suck a huge amount of money out of the economy with people having far less each month to spend on goods and services making the threat of recession loom ever larger.”
Watch: What is a recession and how do we spot one?
Download the Yahoo Finance app, available for Apple and Android.
