Main Quotes Calendar Forum
flag ★ UK slowdown fears mount

Analysis News:::2022-06-14T12:13:11

UK slowdown fears mount

UK slowdown fears mount

The UK economy unexpectedly shrank in April. The country's GDP dropped by 0.3% for the month. Notably, UK GDP fell by 0.1% in March. Such a performance is the first consecutive decline since April and March 2020, when the world was shaken by the coronavirus pandemic. Economists polled by Reuters had on average expected gross domestic product (GDP) to grow by 0.1% in April from March.

GDP would have expanded by 0.1% excluding the impact of a reduction in the government's coronavirus test-and-trace and vaccination programs, the Office for National Statistics said. Moreover, it was the first time since January last year that all main economic sectors had shrunk.

Many firms said increases in the cost of production had affected their business.

Martin Beck, chief economic advisor to the EY ITEM Club, a forecasting group, said the growth was likely to rebound in the third quarter, although there was little hope for it. He added that purchasing power would probably decline due to rapidly rising prices, disrupted supply chains and the recent notable weakening of the pound.

Finance minister Rishi Sunak, who last month announced extra support for households and is expected to do more later this year, said Britain was not alone in facing the hit from a rising cost of living today. Sunak mentioned that countries around the world were seeing slowing growth because of the Russian-Ukrainian conflict.

Last week, however, the Organization for Economic Co-operation and Development said Britain's economy would show no growth next year, the weakest forecast for 2023 of any country in the Group of 20 with the exception of sanctions-hit Russia.The Confederation of British Industry (CBI) is also very negative about the future of the British market. Thus, the CBI experts warned of stagnation and possibly a recession. Tony Danker, CBI director general, said: "We're expecting the economy to be pretty much stagnant. It won't take much to tip us into a recession, and even if we don't, it will feel like one for too many people."Rain Newton-Smith, CBI chief economist, added: "War in Ukraine, a global pandemic, continued strains on supply chains – all preceded by Brexit – has proven to be a toxic recipe for UK growth.

Despite the slowdown, the BoE is expected to raise interest rates for the fifth time since December on Thursday. The regulator, of course, cannot stand idly by when inflation in the country promises to be above 10% as early as the last quarter of this year. Most investors and economists expect another quarter percentage-point rate hike this week, taking the Bank Rate to 1.25%, its highest since 2009. If these forecasts are realized, such a rate hike in Britain would be the sharpest in 25 years.

In addition, economists are confident that the Bank of England's Monetary Policy Committee will double the rate to 2% by September and that it will reach 3% by March next year. For example, Sanjay Raja at Deutsche Bank said on Friday he expected rates to peak at 2.5%, up from a previous call of 1.75%.

Despite the general negative sentiment following the release of UK GDP data on Monday, economists said there was some encouraging news, including a 2.6% increase in consumer-facing services such as hairdressing and the grooming industry. The retail sector also grew by 1.4%.

However, April's jump in domestic power tariffs and an increase in taxes paid by workers introduced that month are likely to squeeze living standards and the broader economy.

Separate trade data published by the ONS showed the impact of sanctions on Russia, with exports to the country falling to the lowest monthly value since January 1999, and imports the lowest since March 2004.

Notably, since February 24, the beginning of Russia's invasion of Ukraine, Western countries led by the US with the active participation of the European Union, the UK, Canada and Japan imposed sanctions against Russia, including disconnecting some Russian banks from the international SWIFT system. The European Union has introduced six packages of restrictive measures against Moscow, the latest of which includes a phase-out of Russian oil imports by the bloc's countries. On March 8, the United States imposed an embargo on the purchase of Russian oil and oil products. The UK intends to phase out energy carriers from Russia by the end of this year.

Analyst InstaForex
Share this article:
You have watched all the best publications
We are already looking for something interesting for you...
Recently published:
More recent publications...