UK heading for recession as GDP falls 0.3% in April
THE UK economy shrunk in April new figures reveal, as experts warned the country is heading for recession.
Gross Domestic Product (GDP) fell by 0.3% official date from the Office for National Statistics (ONS) released today shows.
The latest data comes as millions of Brits face a crippling cost of living crisis.
Energy bills and fuel are among the everyday costs shooting up as inflation has hit 9% - and could still climb higher this year.
The country's leading business group has warned that Brits face the biggest squeeze on their finances since the 1950s.
The CBI also says Britain is on the brink of recession.
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It predicts inflation will hit 8.9%, seeing real household disposable income falling 2.3% by Christmas
The CBI is also downgrading growth forecasts to 3.7% this year and a meagre 1% next year.
Last month the economy shrank by 0.1%, and 0% growth was recorded in the month before that.
The fall in GDP of 0.3% in April is the biggest contraction since January 2021. It is now 0.9% above its pre-pandemic level, the ONS said.
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Chancellor Rishi 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.”
GDP is one of the main indicators used to measure the performance of a country's economy.
When GDP goes up, the economy is generally thought to be doing well.
Negative growth often brings with it falling incomes, job cuts and lower consumption.
To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies.
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."
The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.
The central bank is this week expected to increase interest rates again when it meets on Thursday, June 16.
The BoE hiked rates in May for the fourth time meaning the base rate now stands at 1% - its highest in 13 years.
A further hike is likely in a bid to keep a lid on inflation, and is usually passed on to consumers in the form of higher interest rates on mortgages and other borrowing.
Savers could earn more on the cash they have in their accounts, though banks are usually slower to pass on a rate increase on savings.
Alice Haine, personal finance analyst at Bestinvest: "The latest GDP data from the ONS intensifies the likelihood of the UK heading for a prolonged period of stagflation – where an economy simultaneously experiences stagnant or low economic growth and high inflation.
"With inflation hitting 9% in April and expected to hit double digits in the fourth quarter, amid surging food, fuel and energy prices, it is only natural to expect households to rein in their spending as they strive to meet their monthly financial obligations."
What is a recession?
A country is in recession when its economy shrinks over a sustained period of time, rather than growing normally.
It is calculated using something called Gross Domestic Product (GDP), which in the UK is the value of all the goods and services added up in pounds.
Generally speaking, if the GDP has fallen over two quarters (or six months), a country is said to be in recession.
Recessions are bad news, because they usually lead to unemployment and wage stagnation.
This in turn means the government gets less tax, which could mean cuts to services and benefits, or that rates go up.
There are lots of different factors that can cause a country to tip into a recession.
The UK last went into recession in 2020 after the coronavirus pandemic hit.
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Prior to that, the UK was in recession in 2008/9 when the global financial crisis hit.
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Previous recessions include:
- The end of World War 1: 1919-1921
- The Great Depression: 1930-1933
- Stagflation and oil price shock: 1973-1975
- Tightening of fiscal policy: 1980-1982
- House price crash: 1990-1992
- Banking crisis: 2008-2009
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