Investment in United Kingdom

United Kingdom - Investment

Economy contracts at sharpest pace since January 2021 in April, although underlying momentum is less downbeat

GDP declined 0.3% month-on-month in seasonally-adjusted terms in April (March: -0.1% mom). April's figure marked the sharpest drop since January 2021. The downturn reflected drops in manufacturing, construction and services. The services sector was weighed down by lower pandemic-related healthcare spending as free Covid-19 testing ended, while higher input prices and supply constraints hobbled manufacturing. In contrast, within the services sector, accommodation and food services sped up considerably as the impact of the pandemic dissipated, while retail sales rebounded from March’s contraction.

On a rolling quarterly basis, GDP grew 0.2% in February–April, which was below January–March’s 0.8% expansion and marked the worst result since the three months up to March 2021.

April’s figures put the economy on track for a contraction in GDP in quarterly terms in Q2. That said, the fall in pandemic-related health spending muddied the economic picture in April and downplayed the economy’s underlying strength.

On the latest reading, ING’s James Smith commented:

“April’s UK GDP figures were always going to look worse than reality. Free Covid-19 testing stopped the previous month and according to the ONS that meant there was a 70% fall in test and trace activity. Pandemic-related health spending shaved a full 0.5 percentage points off GDP growth in April. And if we strip that out, the headline 0.3% decline in monthly GDP should actually have been marginally into growth territory.”

FocusEconomics panelists expect the economy to expand 3.7% in 2022, which is down 0.1 percentage points from last month’s forecast, and 1.5% in 2023.