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A combination of a weak March handover and the Queen’s Jubilee in June is set to see the UK economy contract in the second quarter.

An easing of coronavirus restrictions resulted in the UK economy growing 0.8% over the first quarter. But this respectable outturn masked a deterioration in the monthly profile. After a 0.7% expansion in January, GDP was unchanged in February before going on to contract by 0.1% in March. While this was in line with our expectations, City economists had looked for it to be steady in March.

On a sectoral basis, a 0.2% decline in services output was driven by a 15.1% fall in motor trade activity as persistent bottlenecks impacted a typically bumper month for sales. Meanwhile, weaker pharmaceutical manufacturing and mild March temperatures resulted in a 0.2% fall in industrial production. By contrast, construction output jumped 1.7% on the back of repair work following storms in February as well as office refurbishments.

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Looking past these distortions, today’s figures reinforce our expectation that the UK economy will contract in the second quarter. Rock bottom consumer confidence will spur precautionary saving as households eye the income squeeze that is set to come to a head later this year from higher energy prices. There is also no let up in sight for capacity-constrained sectors, limiting any boost afforded by the rotation in consumption back from goods to services. These factors are set to result in subdued April and May prints, before a sharp contraction in June on account of the Queen’s Jubilee bank holiday weekend.

However, we suspect the UK will avoid falling into a technical recession (i.e., two consecutive quarters of negative growth). Contractions incurred by the Jubilee celebrations in 2002 and 2012 were followed by sharp July rebounds. We think history will repeat itself and ensure that GDP grows over the third quarter as a whole. Beyond this, we think that the UK economy could head back into reverse in the fourth quarter as the Ofgem price cap rises by a further 40% or so. A key factor will be what additional support the Chancellor provides and whether this comes in the autumn Budget or if he bows to pressure for an emergency fiscal package.

In any case, we doubt the Bank of England’s Monetary Policy Committee (MPC) will be deterred from further tightening policy. It will almost certainly raise interest rates at both its June and August meetings, taking Bank rate to at least 1.50%. But it is less clear whether the MPC will subsequently raise it to 2.00% by year-end, as markets expect. If the labour market starts to deteriorate, the committee may find it hard to justify further tightening before the window to do so closes in 2023.

By GEORGE BROWN

Source: City AM

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The UK economy contracted by 0.1 percent in March, according to data out Thursday from the Office for National Statistics.

The release also reported that GDP flatlined in February, revised down from a preliminary estimate of 0.1 percent growth.

The March slump stemmed from weakness in wholesale and retail trade and consumer services, including the repair of motor vehicles and motorcycles industry, the ONS said. Production also fell, although this drop was partly offset by an increase in construction. The UK economy is now 1.2 percent above its pre-pandemic levels in February 2020.

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“The U.K. economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year,” said Darren Morgan, director of economic statistics at the ONS.

A range of service sectors, such as hospitality, transport and travel, had initially rebounded after the pandemic, said Morgan. But there were also “some downwards effects from other services, including retail, wholesaling and car sales.” The health sector also shrank, as the U.K’s “test and trace” system was scaled down.

Overall, U.K. GDP growth grew by 0.8 percent in the first quarter of 2022. That’s below analysts’ expectations of 1 percent and down from the 1.3 percent increase in the last quarter of 2021.

BY LOUIS WESTENDARP

Source: Politico

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The UK economy barely grew in February as GDP expanded by just 0.1 per cent, with the economy suffering from the impact of weaker contributions from the health and manufacturing sectors and disruption from storms.

February’s growth was lower than markets were expecting and compared with with 0.8 per cent in January, according to the Office for National Statistics.

The main area of growth was services, which grew by 0.2 per cent, but this was offset by a 0.6 per cent fall in production and a 0.1 per cent fall in construction levels.

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Consumer-facing services grew 0.7 per cent in February, driven by a 33 per cent rise in travel agency and tour operator services, though these services continue to be 5.2 per cent lower than their pre-coronavirus levels.

A 47 per cent slowdown in the NHS’s test and trace programme and a 65 per cent fall in the Covid vaccination programme contributed to a 1.1 per cent detraction from GDP in the month but the ONS said it was important to note this followed particularly high levels of activity in December and January.

Monthly GDP now sits 1.5 per cent higher than its pre-Covid level in February 2020.

The ONS noted it had received anecdotal reports of the impact of the storms Dudley, Eunice and Franklin which hit the UK between February 16 and 21, but it said it was difficult to quantify these effects.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that while the economy was above pre-pandemic levels, its underlying health may be weaker given increased healthcare activity has been the “crutch” supporting the UK economy.

“The main contributor to the recovery from the start of the crisis has been human health and social work activities and the reduction of the test and trace scheme and vaccination programme partly accounted for the slowdown in February,” she said.

“We still need to see a shift upwards in overall productivity levels but with the labour crunch intensifying, borrowing costs rising and business investment flagging that is proving elusive.”

Derrick Dunne, chief executive of You Asset Management, said: “GDP currently sits at 1.5 per cent above pre-pandemic levels, however with consumer confidence plummeting and inflation expected to rise once again on Wednesday, fears that the UK could enter a recession this year are rife.

“Whether or not this will become a reality remains to be seen but, against this uncertain backdrop, it would be prudent for investors to review their portfolio and consider where any adjustments may be needed to keep them on course to meet their long-term goals.”

Chancellor of the Exchequer, Rishi Sunak, welcomed the positive growth seen across the UK economy in February.

“Russia’s invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding robustly against Putin’s unprovoked invasion,” he said.

By Sally Hickey

Source: FT Adviser

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The UK economy grew by just 0.1% in February, despite a strong resurgence of both inbound and outbound tourism activity – including travel agencies, hotels, and tour operators.

But growth has slowed sharply since January, when gross domestic product (GDP) jumped by 0.8% as people returned to normal life following a surge in Omicron rates in December 2021.

The figure of 0.1% for February falls short of the 0.3% growth predicted by most analysts.

Data from the Office for National Statistics (ONS) showed that monthly GDP is now 1.5% above its pre-pandemic level of February 2020.

But despite a rise in tourism, the UK economy was dragged down by a fall in production, which slipped by 0.6% and construction, which fell by 0.1%, the ONS said.

Car production in particular has fallen steeply in recent months, pushed down by the ongoing chip shortage and the closure of Honda’s plant in Swindon.

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Growth was also hampered by the reduction in the NHS Test and Trace and vaccination programmes, which made a strong contribution to GDP at the start of the year, according to Darren Morgan, director of economic statistics at the ONS.

The UK’s economy grew by 7.4% last year in a record rebound from a devastating 2020, when it suffered its biggest annual fall since just after World War One.

But last month, Chancellor of the Exchequer Rishi Sunak revised down the UK’s 2022 growth forecast to 3.8% from 6% in light of the growing cost of living crisis and surging energy prices following Russia’s invasion Ukraine.

In a statement on Monday following the release of the most recent GDP figures, Mr Sunak said: “I welcome the positive growth seen across the economy in February, which continues to recover from the pandemic, boosted by the support we provided.”

“Russia’s invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding robustly against Putin’s unprovoked invasion,” he said, adding: “We are supporting families with the cost of living with £22bn of support this financial year.”

The average UK household will experience a £2,553 drop in income this year, half of which is as a result of the invasion of Ukraine, according to the Centre for Economics and Business Research (CEBR).

There is also expected to be a considerable jump in the prices we pay at the supermarket and petrol pump.

The CEBR predicts that inflation will now peak at 8.7% next quarter and then stay twice as high as expected until the second half of 2023. This means a shopping basket that cost £20 a year ago will cost almost £22 in the next few months.

The impact of deadly storms Dudley, Eunice and Franklin, which all hit the UK between 16 and 21 February, may have also weighed on economic growth, the ONS said.

“Most of those reporting a negative impact were in service industries with comments received from businesses operating in areas including accountancy, leisure parks and holiday centres, photography, hairdressing and beauty, leasing of construction equipment, restaurants and takeaways, and marquee hire,” the report stated.

“However, some businesses reported a positive impact on turnover such as those working in fencing, torch sales, and temporary off-grid power.”

Source: Sky News

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