The UK economy experienced no growth in April, according to the Office for National Statistics (ONS). This comes after a 0.4% expansion in March. The lack of growth in April was attributed to wet weather conditions, which held back retail sales. Economists had predicted that GDP would be flat in April, citing weaker-than-usual retail sales over the Easter period as a contributing factor [a6dd9fc2] [618990ac] [81a6ec74].
The services sector, which accounts for a significant portion of the UK economy, experienced modest growth of 0.2% in April. However, output in consumer-facing services fell by 0.7%, indicating a decline in consumer spending. The production sector also saw a decline of 0.9%, with manufacturing recording a poor month. Construction contracted by 1.4% due to poor weather conditions, as the UK received about 155% of the average rainfall for April [a6dd9fc2] [690af667] [618990ac] [81a6ec74].
Prime Minister Rishi Sunak, who has campaigned on a platform of economic improvement, now faces a challenge as the UK economy stalls. The recent data challenges claims of the economy turning the corner. Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, suggests that flat growth and rising unemployment may prompt the Bank of England to consider an interest rate cut this summer. However, robust wage growth figures and disappointing inflation data in April could delay the first reduction until later in the year. High borrowing costs have led consumers to prioritize essential household expenses and debt repayments, leaving less disposable income for other spending. Even those who have experienced some relief from easing inflation, falling energy prices, and rising wages are unlikely to increase their spending. Until interest rate cuts or a new government come into play, households concerned about their finances are advised to tighten their budgets, pay down debts, build emergency funds, and explore tax-efficient saving and investment options for long-term financial security [618990ac] [81a6ec74].
Despite the recent slowdown, some forecasters have upgraded their projections for the UK economy based on anticipated consumer strength. However, it is worth noting that the UK economy has only grown by 1.7% since the pandemic, in contrast to the 8.7% growth of the US economy. Disposable incomes in the UK are not expected to recover to pre-pandemic levels until 2025-26 [690af667] [81a6ec74].
The UK GDP report for April has raised concerns and could potentially impact voter thinking ahead of the general election. The slowdown in economic growth may influence the decisions of voters as they consider the state of the economy and the policies put forth by political parties. Additionally, the Bank of England is set to deliver its interest rate decision on June 20, and recent labor market data showing signs of weakness could influence the central bank's decision. The GDP report for April could further raise expectations of a near-term interest rate cut by the Bank of England [690af667] [81a6ec74].
Rachel Reeves, the Shadow Chancellor of the Exchequer, responded to the GDP figures, expressing concern over the lack of growth in April. She highlighted the need for the government to take action to support the economy and ensure a strong recovery. Reeves emphasized the importance of investing in infrastructure, skills, and green industries to stimulate economic growth and create jobs [6e2199af] [81a6ec74].
In response to the UK GDP report, the GBP/USD exchange rate initially fell to a low of $1.27310 before climbing to a high of $1.27472. However, after the release of the report, the GBP/USD rose to a high of $1.28499 before falling to a low of $1.27397. As of Wednesday, June 12, the GBP/USD exchange rate was up 0.05% at $1.27460 [f8aeb78f] [5196d021] [81a6ec74].
Investors are also paying attention to the US CPI report, the FOMC interest rate decision, the FOMC economic projections, and the FOMC press conference. Economists are forecasting a slight decrease in the US core inflation rate from 3.6% to 3.5% in May, while the annual inflation rate is expected to remain at 3.4% [f8aeb78f] [efa237e7] [81a6ec74].
The UK economy failed to grow in April, marking a slowdown from growth of 0.4% in March. Weaker-than-usual retail sales over Easter and a fall in construction output contributed to the flatlining economy. TUC General Secretary Paul Nowak criticized the Tories for turning Britain into a "stagnation nation" and Labour's Shadow Chancellor accused Rishi Sunak of claiming the country has turned a corner despite the stalled economy. Think tank the Resolution Foundation warned that the next government's key goal must be to end Britain's economic stagnation. Gross domestic product per capita has grown by just 4.3% in total during the 16 years since the financial crisis, compared to 46% in the 16 years prior to that [81a6ec74].