UK economy falls shrinks by 0.3% in April with Sunak admitting ‘challenges’

The UK economy has fallen deeper into the red shrinking 0.3 per cent in April as businesses sounded the alarm about a full-blown recession.

GDP was down for the second month in a row after a 0.1 per cent dip in March, underlining the ‘Stagflation’ threat as prices soar.

Although the strong bounceback from Covid means there there has still been growth overall so far this year, Rishi Sunak admitted there are ‘challenges’ – with predictions of the worst squeeze on incomes in a generation.

he CBI has urged Boris Johnson and the Chancellor to take ‘vital action’ in the coming months needed to keep UK plc running.

The group warned there is a risk that the economy would be a ‘distant second’ to politics in the coming months because of the cost-of-living crisis, airports struggling to cope, planned national rail strikes and ‘Groundhog Day’ battles with the EU over the Northern Ireland Protocol.

The CBI downgraded its growth outlook to 3.7 per cent for this year from 5.1 per cent previously, and just 1 per cent in 2023 from 3 per cent.

Last week the OECD think-tank predicted that the UK will flatline next year, recording the worst performance in the G20 except for sanctions-hit Russia.

Darren Morgan, director of economic statistics at the ONS, said: ‘A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.

‘Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.

‘These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March.’

All three main sectors suffered a fall in output for the first time since January 2021, according to the Office for National Statistics (ONS) data.

April’s drop in GDP was the biggest contraction since January 2021.

Output contracted by 0.3 per cent in the main services sector, largely due to the ending of the Government’s Covid-19 Test and Trace programme and lower vaccination activity.

In a crumb of consolation, the ONS said that with the Test and Trace and vaccines impact stripped out, GDP would have risen by 0.1 per cent in April.

But there were also declines in the manufacturing and construction sectors, down 1 per cent and 0.4 per cent respectively, with manufacturers in particular noting the impact of soaring prices and supply chain woes.

Mr Sunak said: ‘Countries around the world are seeing slowing growth, and the UK is not immune from these challenges.

‘I want to reassure people, we’re fully focused on growing the economy to address the cost of living in the longer term, while supporting families and businesses with the immediate pressures they’re facing.

‘We have a plan to turbocharge productivity through investment in capital, people and ideas, so everyone across the country can benefit from a strong, healthy economy.’

David Bharier, Head of Research at the British Chambers of Commerce (BCC), said: ‘The fall of 0.3 per cent in April, following a 0.2 per cent decrease in March, highlights the increasing stress the UK economy is under. All main sectors have seen a fall in growth, the first time since January 2021.

‘This decline is the inevitable outcome of surging inflation, supply chain disruption and widespread skills shortages.

‘Businesses from all sectors are facing unprecedented rises in raw material costs, soaring energy bills, and wage pressures. The introduction of an increase to employer National Insurance Contributions in April has only further added to firms’ woes.

‘This declining output comes off the back of two years of significant damage sustained by small businesses, whose weakened cash positions mean that they are in a far worse position to stomach further pressure. The global aspects to all these problems mean they are likely to weigh heavily on the UK’s prospects for growth for some time.’

Shadow chancellor Rachel Reeves said: ‘These figures are extremely worrying and will add to the concern families are still feeling about their own finances and the long term health of our economy.

‘They will also add to growing concern about abysmal growth and plummeting living standards under the Conservatives.’

Overnight Tony Danker, CBI director general, unveiled their latest forecasts.

He said: ‘Let me be clear – 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.

‘Times are tough for businesses dealing with rising costs, and for people on lower incomes concerned about paying bills and putting food on the table.

‘It’s as clear as day that business investment is one of the few bright spots left in our economy.

‘We’ve had weeks of politicking with the country standing on the brink of a summer of gridlock.

‘There is only a small window until recess. Inaction this summer would set in stone a stagnant economy in 2023, with recession a very live concern.

‘We need to act now to install confidence.’

The CBI called for measures including steps to alleviate labour and skills shortages.

Rain Newton-Smith, CBI chief economist, added: ‘This is a tough set of statistics to stomach. 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.