Rising cost of living is ‘really starting to bite’
0.1% drop in GDP in March shows rising cost of living ‘really starting to make a dent’, says ONS director of economic statistics darren Morgan.
speaking in the Today program Now, Morgan Explain:
We saw retail take a big drop and that was way below expectations. In particular, we saw much lower levels of spending on expensive, non-essential items.
We also saw a big drop in fuel sales, with one factor being people telling us that they’re starting to cut back on essential and non-essential travel because of the price they’re paying at the pump.
Morgan adds that the UK car trading industry is struggling at the moment. New car registrations in March were the weakest since 1998, in part due to supply chain problems.
ONS: Lowest quarterly growth in a year
darren morgandirector of economic statistics 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 last three months was the lowest in a year.
“This was driven by growth in a number of service sectors as the economy continued to recover from the effects of Covid-19, including hospitality, transportation, employment agencies and travel agencies. There was also strong growth in IT.”
“Our latest monthly estimates show that GDP (gross domestic product) fell a bit in March, with falls in both services and production.
“However, construction had a good month, thanks in part to repair work after the February storms.”
Quarterly growth slowed to 0.8%
Overall, UK economic growth slowed to 0.8% during the first three months of 2022 as the economy cooled.
That is slower than the 1.3% growth recorded in October-December, but lifts quarterly GDP above its pre-crisis levels.
It is also slightly 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 the March reversal, the UK economy is now just 1.2% above its pre-coronavirus level.
Services it is now 1.5% above its pre-coronavirus level, while construction is 3.7% higher and production It is still 1.6% down, with factories having struggled with supply chain disruption and shortages of raw materials and parts.
The UK services sector contracted 0.2% in March and was the main contributor to the 0.1% drop in GDP in March.
The production of consumer-facing services fell by 1.8%, after a growth of 0.5% in February 2022.
Production also contracted 0.2%, but construction expanded 1.7% (suggesting construction activity picked up after the storm disruption in February).
The UK economy shrank 0.1% in March
Newsflash: The UK economy contracted in March, with a drop in GDP of 0.1%.
That’s slightly worse than the 0% growth forecast and will fuel concerns that the economy is weakening.
The GDP report also shows that there was no growth in February.
February GDP has been revised down to 0% growth, below the +0.1% estimate for the first time.
More to follow…
Deutsche Bank UK economist Sanjay Raja also predicts that the UK economy will stall in March and could contract in the current quarter (April-June).
Here is his version of the UK GDP report (to be published in about 10 minutes):
We expect GDP in the first quarter of 2022 to expand by just under 1% qoq. Much of the jump in activity is likely to come from household consumption and private investment (including net purchases, housing investment, and inventories).
Looking ahead to the second quarter, we will be keeping an eye on the March GDP figure, given the carry-over effect to the next quarter. On this front, we expect monthly GDP to have stalled, with risks tipped to a negative print. We continue to expect a second quarter contraction, with the economy contracting 0.2% qoq, a forecast we have had for some time.
For 2022, we continue to see 3.8% growth, although risks to our projection are tilted to the downside, with downside risks likely to remain elevated through the second quarter of 2022.
Introduction: UK GDP report for March and first quarter
Good morning and welcome to our ongoing coverage of business, the world economy and the financial markets.
A new health check in the UK today will show how the economy has slowed as the cost of living crisis hits families and threatens to push the country into recession.
The GDP report for the first quarter of 2022, due out at 7 a.m., is expected to show the economy expanded by a healthy-sounding 1% in the first quarter, down from 1.3% in the last quarter of 2021.
But most of that growth came in January, as activity rebounded strongly after Omicron’s halt in December.
Growth slowed to just 0.1% in February, and some economists fear it could have stalled in March, with estimates of 0% growth in March alone.
Miguel Hewson from CMC markets Explain:
The services index is expected to offset 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 this year for the UK economy. Business investment is also expected to improve to 1.9% from 1% in the fourth quarter.
In the monthly GDP figures, we have seen a 0.8% expansion in January and a 0.1% expansion in February. March could well see a contraction, although estimates point to a plateau at 0%, which is still likely to drag the quarterly number lower.
It also comes out today
European markets are expected to fall around 1%, ending Wednesday’s rally, as fears over inflation and rising interest rates continue to weigh on equities.
Wall Street had another turbulent session yesterday, ending lower, and tech stocks continued to slide.
Higher-than-expected US inflation dampened hopes the US Federal Reserve could pull off a ‘soft landing’ as it raises interest rates, with the CPI only falling to 8.3 % in April.
Hebe Chen from IGRAM Explain:
Inflation in the US rose at a slower pace in April, but impatient traders weren’t happy with the pace.
The US CPI print that came out last night was even stronger than the 8.3% vs 8/2% (YoY) forecast, suggesting price pressure will linger at higher levels for longer , even if it has already peaked.
That sell-off has seen Apple lose its title as the world’s most valuable company to energy giant Saudi Aramco, which has been buoyed by higher oil prices.
On the corporate front, BT, rolls royce, Balfour beautifull Y super dry they are reporting results.
- 7am BST: UK GDP and trade reports for Q1 2022 and March
- 9am BST: IEA Oil Market Monthly Report
- 9.30am BST: Latest ONS Economic Activity Survey
- 13:30 BST: US PPI Survey of Producer Price Inflation
- 13:30 BST: Weekly US jobless claims report.