The UK economy fared better than most other G7 countries in the first quarter of this year.
But, its recovery from the pandemic crisis is still in the middle of the pack.
The UK’s 0.8% growth in January-March is ahead of France (which stagnated), Germany (which grew 0.2%), Italy (where GDP fell 0.2%) and the US (which surprisingly shrank 0.4%).
But the US, Canada and France have all outperformed the UK if you compare growth to pre-pandemic levels, as this chart shows:
The 0.1% fall in GDP in March shows that the rising cost of living is ‘really beginning to bite’, says ONS director of economic statistics Darren Morgan.
Speaking on the Today programme now, Morgan explains:
We saw retailing have a large fall and that was well below expectations. In particular, we saw far lower levels of spending on big-ticket, non-essential items.
We also saw a large fall in fuel sales, with one factor people telling us they’re beginning to cut back on essential and non-essential journeys because of the price they’re paying at the pumps.
Morgan adds that the UK’s motor trade indutry is really struggling at the moment. New car registrations in March were the weakest since 1998, partly due to supply chain issues.
Darren Morgan, director of economic statistics at the Office for National Statistics (ONS), says:
“The UK 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.
“This was driven by growth in a number of service sectors as the economy continued to recover from Covid-19 effects, including hospitality, transport, employment agencies and travel agencies. There was also strong growth in IT.”
“Our latest monthly estimates show GDP (gross domestic product) fell a little in March, with drops in both services and in production.
“Construction, though, saw a strong month, thanks partly to repair work after the February storms.”
Overall, the UK economic growth slowed to 0.8% during the first three months of 2022, as the economy cooled.
That’s slower than the 1.3% growth recorded in October-December, but it does lift quarterly GDP above its pre-crisis levels.
It’s also a little weaker than the 1% growth expected by economists.
That could be the best quarterly growth we see this year, as the cost of living crisis hits the economy.
After March’s reversal, the UK economy is now just 1.2% above its pre-coronavirus pandemic level.
Services is now 1.5% above its pre-coronavirus level, while construction is 3.7% above and production is still 1.6% below — with factories having struggled with supply chain disruption, and shortages of raw materials and parts.
The UK’s service sector shrank by 0.2% in March, and was the main contributor to March’s 0.1% drop in GDP.
Output in consumer-facing services fell by 1.8%, following a 0.5% growth in February 2022.
Production also shrank by 0.2%, but construction expanded by 1.7% (suggesting building activity recovered after storm disruption in February).
Newsflash: The UK economy contracted in March, with GDP falling by 0.1%.
That’s slightly worse than the 0% growth forecast, and will fuel concerns that economy is weakening.
The GDP report also shows there was no growth in February.
February’s GDP has been revised down to 0% growth, down from the +0.1% first estimated.
More to follow…
Deutsche Bank UK economist Sanjay Raja also predicts the UK economy flatlined in March, and could contract in the current quarter (April-June).
Here’s his take the UK GDP report (to be released in around 10 minutes):
We expect Q1-2022 GDP to expand by just under 1% q-o-q. Much of the jump in activity will likely have come from household consumption and private investment (including net acquisitions, dwelling investment, and stocks).
Looking ahead to Q2, we will be watching the March GDP number closely, given the carry over effect into the next quarter. On this front, we expect monthly GDP to have flatlined, with risks tilted to a negative print. We continue to expect a Q2 contraction, with the economy shrinking by 0.2% q-o-q – a call we’ve had for some time now.
For 2022, we continue to see growth printing at 3.8%, though risks to our projection are tilted to the downside, with recession risks likely to remain elevated into Q2-2022.
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
A new healthcheck on the UK today will show how the economy has slowed, as the cost of living crisis hits families and threatens to pull the country into recession.
The GDP report for the first quarter of 2022, due at 7am, is expected to show that the economy expanded by a healthy-sounding 1% in Q1, down from 1.3% in the final quarter of 2021.
But most of that growth came in January, as activity picked up strongly after Omicron disruption in December.
Growth slowed to just 0.1% in February, and some economists fear it could have ground to a halt in March, with estimates of 0% growth in March alone.
Michael Hewson of CMC Markets explains:
Index of services is expected to make up most of the expansion, coming in at 0.9%, however if the Bank of England is to be believed this quarter could be as good as it gets this year for the UK economy. Business investment is also expected to improve to 1.9% from 1% in Q4.
On the monthly GDP numbers, we’ve seen a 0.8% expansion in January, and a 0.1% expansion in February. March could well see a contraction, although estimates are for stagnation at 0%, which is still likely to drag the quarterly number down.
Also coming up today
European markets are set to fall around 1%, wiping out Wednesday’s rally, as fears over inflation and rising interest rates keep hitting stocks.
Wall Street had another turbulent session yesterday, finishing lower, with technology stocks continuing to slide.
Higher than expected US inflation dampened hopes that the US Federal Reserve could achieve a ‘soft landing’ as it raises interest rates, with CPI only dipping to 8.3% in April.
Hebe Chen of IG explains:
Inflation in the United States rose at a slower rate in April, but impatient traders were not happy with the pace.
The US CPI print that came out last night was still stronger than the forecast of 8.3% vs 8/2% (y/y), suggesting the price pressure will persist at higher levels for longer even if it’s already peaked.
That selloff has seen Apple lose its title as the world’s most valuable company to energy giant Saudi Aramco, which has been boosted by higher oil prices.
On the corporate front, BT, Rolls-Royce, Balfour Beatty and SuperDry are reporting results.
- 7am BST: UK GDP and trade reports for Q1 2022, and March
- 9am BST: IEA monthly oil market report
- 9.30am BST: ONS’s latest economic activity survey
- 1.30pm BST: US PPI survey of producer price inflation
- 1.30pm BST: US weekly jobless claims report