UK Economy Unexpectedly Contracts Over March
Thursday 12th May 2022 – 08:22 (BST)
Figures released by the Office for National Statistics (ONS) have indicated the UK economy unexpectedly contracted 0.1% during March.
Cost pressures, along with rising prices, led businesses and households to cut back on spending with key sectors beginning to show signs of strain. In March alone, services and manufacturing output shrank 0.2%, whilst consumer facing services dropped 1.8%. Retail and fuel sales also tumbled despite recent government intervention.
Initial estimates for overall UK productivity during the first quarter of the year also disappointed – showing 0.8% growth versus 1% expected. This was in stark contrast to the previous quarters 1.3% growth, however it does lift quarterly GDP back above pre-crisis levels and is likely to be the UK’s best quarter during 2022.
GBP continued to soften following the announcements and remains on track for its worst performing month since the beginning of the pandemic. Trading below $1.22 against USD and €1.17 versus the euro, analysts now expect key levels of resistance to be tested.
Elsewhere, UK Chancellor Rishi Sunak was keen to emphasise the UK’s second-fastest growth output within the G7 over Q1 whilst also acknowledging the anxious times ahead; “The UK economy recovered quickly from the worst of the pandemic and our growth in the first few months of the year was strong, faster than the US, Germany and Italy, but I know these are still anxious times.”
He also expressed concern over immediate pressures placed upon UK households but fell short of pledging any further support; “Growth is the best way to help families in the longer-term so as well as easing immediate pressures on households and businesses, we are investing in capital, people and ideas to boost living standards in the future.”
The latest data follows warnings by the Bank of England regarding the growing threat of a UK recession. Inflationary pressures, pandemic related issues and the Ukraine conflict have created a perfect economic storm, leaving households facing the sharpest cost of living increase in a generation.