The UK’s economy shrank by a bigger than feared 0.3 per cent in April, official figures revealed on Monday as Boris Johnson rejected demands to quickly cut taxes to ease the cost-of-living crisis.
The City had expected GDP to nudge up 0.1 per cent. But it fell for the second month in a row, having dipped 0.1 per cent in March.
The dominant services sector was down by 0.3 per cent following the end of most of the test and trace programme. Production also fell, dropping by 0.6 per cent, driven by a one per cent fall in manufacturing as businesses were hit by the impact of price increases and supply chain shortages.
With Covid testing and vaccines impact stripped out, GDP would have limped upwards by 0.1 per cent, according to the Office for National Statistics. However, it also highlighted anecdotal evidence across the economy of firms being hit by record fuel and energy prices, in particular in the manufacturing sector.
The average price of a litre of petrol at UK forecourts climbed to a record 185p on Sunday, according to data firm Experian. That is an increase of 7.1p in just seven days, with the average cost of filling a typical family car rising above £100 for the first time last week.
The average price of diesel was 190.9p per litre on Sunday.
Responding to the gloomy GDP figures, which will heighten fears that Britain is heading for recession, 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.”
However, shadow chancellor Rachel Reeves said: “These figures will add to the worry families are still feeling about their own finances and the long-term health of our economy.”
The Prime Minister recently announced a further £21 billion support package for households to ease the cost-of-living crisis, including a £400 discount on gas and electricity bills for every home, with measures part-funded by a windfall tax on energy firm profits.
But there are concerns that more measures will be needed, with inflation already at nine per cent and forecast to soar past 10 per cent in the autumn.
The Bank of England is expected to raise interest rates for the fifth time in a row on Thursday, from one per cent to at least 1.25 per cent.
Mr Johnson, though, signalled that the Government will not put personal tax cuts ahead of other support to help millions of households through the “inflationary spike”, which could last well into next year.
Speaking on a visit to Cornwall, he said: “We are bringing in tax cuts as fast as we can but what we have also got to do is look after people in a tough time so the prior job... the thing that we are doing at the moment is looking after people who are facing increases in the cost of living.”
A number of Conservative MPs are calling for personal tax cuts soon, including bringing forward the 1p cut in the basic rate of income tax from its planned introduction in 2024.
Business group the CBI is urging the Government to take swift action on growth, including supporting business investment and tackling labour shortages in industries such as aviation.
Director general Tony Danker said: “Let me be clear — we’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession.”
Meanwhile, a Cabinet minister was accused of being in “complete denial” over Brexit after claiming it was not impacting on Britain’s GDP figures.
Environment Secretary George Eustice told BBC Breakfast: “I don’t accept that Brexit is a factor in this because we are seeing trade continue and actually the big problems that businesses are facing — labour shortages and wage inflation — that is happening right across Europe and it’s happening in the US.” An analysis by the Centre for European Reform put the GDP blow to the UK economy from quitting the EU at £31 billion.
Lib Dem Treasury spokeswoman Christine Jardine MP criticised Mr Eustice’s Brexit comment, saying: “This Conservative Government is in complete denial.”
