Businesses sounded alarm that the economy is ‘headed for the slaughterhouse’ today after it plunged into the red in March – with Rishi Sunak admitting the country faces ‘anxious times’ and experts warning of Stagflation.
Fears of recession have been fuelled as official figures showed UK plc growing lower than expected in the first quarter – and going into reverse in the final month.
GDP rose by 0.8 per cent between January and March, down from growth of 1.3 per cent in the previous three months, and lower than the 1 per cent pencilled in by analysts.
Activity dipped 0.1 per cent month-on-month in March, with revised figures showing zero progress in February.
Although the economy remains above pre-pandemic levels, the Bank of England has cautioned that the situation is deteriorating fast with inflation tracking towards 10 per cent and unemployment set to rise.
Amid calls for government to do more to help with the cost-of-living crisis, the Chancellor tried to put a brave face on the data – saying growth in the quarter as a whole was still faster than the US, Germany and Italy.
But I know these are still anxious times,’ he said. ‘Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can.
‘Growth is the best way to help families in the longer-term so as well as easing immediate pressures on households and businesses, we are investing in capital, people and ideas to boost living standards in the future.’
Darren Morgan, director of economic statistics at the Office for National Statistics (ONS), said: ‘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.’
He added: ‘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.’
James Smith, Research Director at the Resolution Foundation, said: ‘The UK started the year with a rapid recovery from the pandemic. But the economy already appears to be losing momentum as the cost of living crisis intensifies and the risk of stagflation looms.
‘The economy contracted in March amid rising inflation and falling incomes. With consumer confidence at historic lows and inflation forecast to rise to double digit levels later this year, causing average pay packets to fall by £1,200, there is a clear risk that we slide into recession.
‘The Government can’t shield everyone from all of its impact, but it should provide further targeted support to the low-and-middle income households who will be worst affected.’
Small businesses also pointed to the scale of looming problems.
Dave Kelly, co-founder of Bristol-based butcher Ruby & White, said: ‘Right now, it feels like the UK economy is headed for the slaughterhouse. Inflation, soaring energy bills, tax and interest rate rises are crippling households around the country.
‘Worst of all, it feels like the Government is watching on and doing nothing. For us, sales are still holding up for now but we are seeing slightly more people order cheaper cuts.’
Shadow chancellor Rachel Reeves reiterated calls for an emergency Budget.
She said: ‘Today’s GDP figures will add to the worries families already face as prices soar and pay packets are crunched.
‘That the Chancellor ignored serious warnings undermines any claim he couldn’t have done more to protect the British economy from soaring inflation.
‘The Government’s Queen’s Speech this week was out of ideas and out of touch, devoid of any real economic plan for growth or to tackle the cost of living crisis.’
Last week the Bank of England warned families to brace for a bleak Christmas with the cost-of-living crisis set to reach an agonising climax at the end of this year – and potentially drag the country into recession for the second time in barely three years.
Governor Andrew Bailey laid out the storm clouds that are gathering over the UK, with CPI inflation now expected to peak at 10 per cent – the highest level since 1982 – in the last quarter when the energy cap soars again.
In a brutal hit on families, GDP is projected to plunge by around 0.9 per cent over those three months – and will be in the red through 2023 as a whole, declining by 0.25 per cent.
The Bank suggested the country will avoid a technical recession – defined as two consecutive quarters of falling activity – but experts warned the risk is ‘intensifying’. UK plc has barely clawed back the ground from the Covid-triggered downturn in 2020, which was the biggest in a century.
In a desperate bid to control rampant inflation, the Bank pushed up interest rates once more despite the danger of choking what little growth is left.
The 0.25 percentage point hike took them to a 13-year high of 1 per cent, adding to the mortgage burden for many Britons already struggling to cope with the cost-of-living crisis. It is the fourth increase the Monetary Policy Committee has ordered since December.
The Bank admitted that the balance of risk on inflation is still that it could be even higher than anticipated, with the shock bigger than the oil crisis of the 1970s but not lasting as long.