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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK GDP stagnated in wet April; Wall Street hits record high as US inflation falls – as it happened

United Kingdom Economy GDP United States
The skyline of the City of London.
The skyline of the City of London. Photograph: Andy Rain/EPA

Closing post

Time for a recap…

The UK economy flatlined in April, held back by wet weather, as the signs of a recovery from last year’s recession began to fade.

In a blow to Rishi Sunak’s hopes of signalling a strong bounceback before the general election on 4 July, the Office for National Statistics (ONS) said monthly growth slowed after a 0.4% increase in March.

The economy was unable to maintain its momentum after being weighed down by the struggling retail sector, a downturn in manufacturing and a drop in construction output.

The 0.0% growth figure matched the forecast by City economists, who blamed the month’s heavy rains for difficulties faced by workers on building sites and the lack of shoppers on the high street.

Sunak really can’t catch a break, says our economics editor Larry Elliott:

The latest growth figures are not strong enough for him to boast about on the campaign trail but not weak enough to persuade the Bank of England to cut interest rates next week.

City economists pointed out that the economy did grow over the last three months, by 0.7%, suggesting the recovery was holding up.

But unions blamed the government for the UK’s weak economic performance over several years.

Meanwhile in America, inflation has cooled slightly – triggering a rally in stocks and bonds, and a weakening of the US dollar.

The consumer price index rose at annual pace of 3.3% in May, slipping back from the previous month’s reading of 3.4%.

In other news…

The world is on track for a major oil surplus by the end of the decade, according to the International Energy Agency.

The EU has notified Beijing that it intends to impose tariffs of up to 38% on imports of Chinese electric vehicles.

Analysis: Another washout for Rishi Sunak as rain dampens UK growth

Rishi Sunak must be cursing the British weather, writes our economics editor Larry Elliott:

He got soaked to the skin when announcing the general election outside 10 Downing Street last month. Now it appears wet weather has brought a halt to the UK’s economic recovery.

Statisticians always caution against reading too much into a single month’s figures and on a quarterly basis things don’t look too bad for the prime minister. Indeed, the economy expanded by 0.7% in the three months to April, compared with 0.6% in the quarter ending in March.

But during an election campaign each piece of economic data takes on heightened importance and Labour was quick to exploit the fact that there was zero growth in April. Rachel Reeves, the shadow chancellor, said it exposed the damage caused by 14 years of “Conservative chaos”.

ABN Amro: September rate cut more likely after US inflation fall

Today’s US inflation report increases the odds of a September rate cut.

That’s the verdict of analysts at ABN Amro, who explain:

US monthly core inflation rose by 0.2% m/m in May, below consensus expectations of 0.3%. It marks the first sub-2.0% annualized figure since March 2021. Annual core inflation decreased to 3.4% y/y.

The downward surprise in core inflation was predominantly driven by a negative contribution from transportation services, which had been running hot over the past year, mostly on the back of large rises in car insurance premiums. In May, car insurance premia decreased by 0.1%, but the largest driver was a 3.6% m/m decrease in airfares. Shelter inflation again put upwards pressure on inflation, rising by 0.4% m/m. Supercore inflation, which excludes shelter, actually fell by 0.04%, the first negative reading since September 2021. Headline inflation came in lower at 0.0% m/m, a mere 0.1% annualized, largely due to falling gasoline prices (-3.6% m/m). The surprise in CPI inflation bodes well for PCE core inflation - the Fed’s primary target - which usually comes in lower, and will be released later this month.

The release is good news for the FOMC meeting taking place later today. The surprisingly benign reading shows that the Fed is still making progress on inflation, relieving some of the worries of the first quarter of this year. These inflation figures are a step in the right direction, but policymakers will want to see a couple more months like this before deciding to make a move. Today’s development therefore supports our view that the Fed will cut rates by 25 bps in the September meeting

Software giant Oracle is the top riser on the S&P 500 in early trading.

Oracle’s share are up 11% after it announced cloud deals with Google and OpenAI last night, which cheered traders despite fourth-quarter results that missed Wall Street expectations.

DIY chain Home Depot are the top riser on the Dow, up 4%, followed by Apple which has jumped 2.5% after announcing new artificial intelligence features earlier this week.

Wall Street hits record highs again

Boom! The S&P 500 share index, and the tech-focused Nasdaq index, have both opened at new all-time highs on Wall Street.

Investors are clearly excited by the drop in US inflation, both headline and core CPI, last month.

But….Charlotte Daughtrey, equity investment specialist at Federated Hermes Limited, sounds a note of caution:

“US inflation has proven sticker than anticipated so far in 2024, so today’s print will be welcomed by the market.

That said, it may be premature to extrapolate this single data point and we would expect the Fed to continue to exert caution, with the prospect of limited rate cuts over the remainder of this year.

Ongoing data will continue to be scrutinised as the underlying economic picture emerges.”

While the markets are now excited by falling US inflation in May, experts in Britain are still reacting to the news that the UK economy stagnated in April.

Here’s Adrian Wright, Associate Dean and Director of the Institute for Research into Work, Organisations and Employment at the University of Central Lancashire:

“The April figures for GDP growth are indicative of the huge challenges that lie ahead for the UK economy.

We should be guarded against making concrete predictions based on one month’s data alone, especially off the back of a rise in the first quarter of the year. But these figures do show the volatility in economic conditions.

It appears that manufacturing, construction, production, wholesale and retail are declining in the economy, and while the decline in construction and retail can be put down to the weather, the same cannot be said for manufacturing.

Looking forward, it is uncertain whether this news will influence a change in intention when it comes to interest rates, but what we do know is that high energy bills, food costs and interest rates feed through to high mortgage rates and, therefore, costs on households.”

And Professor Costas Milas, of the management school at the University of Liverpool:

Today’s GDP reading is disappointing and brings back into the picture a possible interest rate cut later this month. I am surprised government officials have not (yet) “exploited” today’s disappointing reading to re-iterate their plan of tax cuts (announced only yesterday by Rishi Sunak).

Would their tax cuts revive GDP growth? The existing economic literature provides some helpful answer. Cuts in national insurance contributions are expected to boost private consumption (as workers will have more money to spend!) and, consequently, stimulate GDP but only in the very short run (less than a year, that is).

Nevertheless, these tax cuts will also put upward pressure on inflation for at least two years and, consequently, force the Bank of England to either delay interest rate cuts (in the best case scenario) or increase interest rates (in the worst case scenario). In other words, Sunak’s tax cuts might do more harm than good...

Here’s Daniele Antonucci, chief investment officer at Quintet Private Bank, on today’s fall in US inflation:

The latest US inflation figures could give the Fed some respite, but only at the margins.

After a string of upside surprises, this time around, headline inflation slowed to 3.3%, against consensus expectations of an unchanged reading from the previous month.

Core inflation, which strips out volatile components such as energy and food, decelerated somewhat more than envisaged, too.

The main issue, though, is that this progress is unlikely to be enough for the Fed to lower rates later today.

What’s more, the new projections are likely to show a maximum of two rate cuts this year, not three as shown in the current ones.

Markets too now price in between one or two cuts by year-end.

This should be seen in the context of an economy that might well be showing signs of slowing, but not when it comes to the jobs market.

US bonds have recovered all their losses from last Friday, when a stronger-than-forecast jobs report spooked investors:

Here’s a neat chart showing how the markets reacted to the US inflation report:

(bond yields move inversely to prices).

The US stock market is set for a positive start too.

The S&P 500 index is on track to jump 0.8% according to the futures markets, with the Russell 2000 index of small companies jumping 2.7%.

Stocks are rallying harder in London too, with the FTSE 100 share inded now up 79 points or almost 1%.

Another important development: The yields (or rate of return) on US government bonds are falling sharply as traders react to the drop in inflation.

Sovereign bonds in Europe are also recovering, with the yield on UK two-year gilts falling to the lowest in a month.

Updated

US dollar slides after inflation report

The US dollar is dropping against other currencies, as May’s inflation report bolsters hopes of interest rates cuts in the months ahead.

The Fed is setting rates at 7pm UK time tonight! But we’re not expecting policymakers to ease policy quite that soon.

Even so, the dollar’s weakness has pushed up the pound by a cent, to a three-month high of $1.2844.

May’s US inflation report should give the US Federal Reserve “some degree of further confidence” that the CPI index is heading back towards its 2% target.

Michael Brown, senior research strategist at Pepperstone, explains:

“While such data will support the view that April’s cooler price data was not a one-off, it is unlikely, on its own, to provide the FOMC with enough confidence to deliver a rate cut just yet, with the next FOMC decision due later today.

Nevertheless, the data does lessen the chances of a hawkish shift in Chair Powell’s rhetoric at the post meeting press conference, even if the dot plot is likely to show a median expectation of 50bp, from 75bp, of cuts this year.

Markets, as near as makes no difference, now price 2 cuts as the most likely outcome, in line with our base case expectation, for cuts to begin in September, followed by another such 25bp reduction in December.”

Updated

The US Bureau of Labor Statistics adds:

Indexes which increased in May include shelter, medical care, used cars and trucks, and education. The indexes for airline fares, new vehicles, communication, recreation, and apparel were among those that decreased over the month.

US inflation falls in May

Newsflash: Inflation across the United States has slowed, news that will be welcomed at the White House and the US Federal Reserve.

Consumer prices were flat, month-on-month, in May, having risen by 0.3% during April.

And on an annual basis, US CPI inflation slowed to 3.3%, down from 3.4% in the year to April. Economists had expected inflation to come in at 3.4% again, so this is better than forecast!

Cheaper gasoline at the pumps helped to ease the cost of living squeeze, while housing costs continued to rise.

Today’s US inflation report says:

More than offsetting a decline in gasoline, the index for shelter rose in May, up 0.4 percent for the fourth consecutive month. The index for food increased 0.1 percent in May.

The food away from home index rose 0.4 percent over the month, while the food at home index was unchanged.

The energy index fell 2.0 percent over the month, led by a 3.6-percent decrease in the gasoline index.

Core inflation, which strips out food and energy, rose 0.2% in May alone, and was 3.4% over the last year – also lower than in April.

Updated

Fedex to cut up to 2,000 jobs across Europe

Parcel delivery firm Fedex is planning to cut between 1,700 and 2,000 back-office jobs in Europe.

The cuts, revelaed in a filing on Wednesday, come as Fedex struggles with weak freight demand.

Reuters has more details:

The cuts will be carried over an 18-month period, the company said, adding that it was expecting a pre-tax cost of $250 million to $375 million related to legal fees and severance benefits.

FedEx expects the job cuts to help save between $125 million and $175 million on an annualized basis beginning in fiscal 2027.

Ian Plummer, commercial director of Auto Trader, hopes the UK won’t follow the EU’s lead and impose tariffs on Chinese EVs.

Plummer explains:

“The European Union’s decision to impose tariffs on Chinese electric vehicles is disappointing, and we hope the UK isn’t tempted to take similar action.

UK drivers already face a lack of affordable choices when it comes to electric cars, so it doesn’t make sense for us to limit those options even further for consumers. We need to bring more buyers into the market by cutting down the “green premium” which means EVs are usually 35% more expensive than diesel or petrol cars. We’ll only do that with open competition to foster innovation, not by reducing choice for consumers.

Chinese entrants are already partnering with UK retailers to deliver a quality, affordable product and they will have an important role to play in the UK’s ongoing transition to electric vehicles.”

The oil price has gained around 1% today, showing it wasn’t dragged down by the UK’s economic stagnation or the prospect of a glut by the end of the decade.

Poll: Bank of England to cut rates in August

City economists widely expect the Bank of England to cut UK interest rates in August, a new poll has found.

Reuters asked 65 economists for their expectations and all but two predicted the BoE will start cutting interest rates in August.

Most of them expect at least one more reduction this year.

But, disappointingly for Rishi Sunak, they all expect the Bank to leave interest rates on hold at its June meeting, next Thursday.

Fatih Birol, the head of the IEA, has suggests that the surplus in supply over the next decade should prompt oil companies to reassess their strategies:

EU to put tariffs of up to 38% on Chinese electric vehicles as trade war looms

Over in Europe, a trade war could be brewing after the EU has notified Beijing that it intends to impose tariffs of up to 38% on imports of Chinese electric vehicles.

The move will trigger duties of more than €2bn (£1.7bn) a year, and will be applied provisionally from next month in line with World Trade Organization rules, which give China four weeks to challenge any evidence the EU provides to justify the levies on imported EVs.

The move follows a nine-month investigation into alleged unfair state subsidies into Chinese battery electric vehicles (BEVs) including top brands such as BYD and Geely, which part owns the Swedish brand Polestar, and Shanghai’s SAIC, which owns the British brand MG.

The EU said in a statement today:

“The provisional findings of the EU anti-subsidy investigation indicate that the entire BEV value chain benefits heavily from unfair subsidies in China, and that the influx of subsidised Chinese imports at artificially low prices therefore presents a threat of clearly foreseeable and imminent injury to EU industry.”

Updated

IEA: Oil glut looms with demand set to peak by end of decade

In the energy sector, the world is on track for a major oil surplus later this decade, according to the International Energy Agency.

In its latest monthly report, the IEA – the energy watchdog – predicts that growth in global oil demand will slow in the coming years as “energy transitions advance”.

At the same time, global oil production is set to ramp up, easing market strains and pushing spare capacity towards levels unseen outside of the Covid crisis, it estimates.

The global economy consumed around 102 million barrels of oil per day last year. The IEA predicts this global demand will “level off” near 106 million barrels per day towards the end of this decade.

It says:

Based on today’s policies and market trends, strong demand from fast-growing economies in Asia, as well as from the aviation and petrochemicals sectors, is set to drive oil use higher in the coming years, the report finds.

But those gains will increasingly be offset by factors such as rising electric car sales, fuel efficiency improvements in conventional vehicles, declining use of oil for electricity generation in the Middle East, and structural economic shifts.

At the same time, the IEA adds, there will be “a surge in global oil production capacity” led by the US and other producers in the Americas such as Argentina, Brazil, Canada and Guyana.

The IEA predicts total supply capacity will hit 114 million bpd by 2030, which it calls “a staggering 8 million barrels per day above projected global demand”.

This, the IEA adds, could have significant consequences for oil markets – including for producer economies in Opec, as well as for the US shale industry.

Updated

Rob Wood, chief UK economist at Pantheon Macroeconomics, reckons the odds of an August interest rate cut have dipped following today’s growth report:

“These growth data further complicate the MPC’s upcoming interest rate decisions. Rate-setters will keep rates on hold in June, but now a cut in August looks a little less likely.”

Dutch bank ING are optimistic the UK economy will grow in the current quarter, although not quite as quickly as in Q1 (when it expanded by 0.6%).

ING’s developed markets economist, James Smith, says:

It may be hard to pick out much in the way of a trend from the UK GDP figures right now at an industry level, but the economy does seem to have built up steam so far this year. We expect 0.4-0.5% GDP growth in the second quarter

FTSE 100 rises despite GDP disappointment

The UK growth slowdown in April hasn’t dented the mood in the stock market this morning.

The FTSE 100 share index has jumped by 0.8%, or 63 points, to 8210, recovering most of its losses yesterday after Wall Street hit record highs last night.

Pest control firm Rentokil are the top riser, up 12%, following reports that activist investor Nelson Peltz’s Trian Partners have taken a stake in the business.

AJ Bell investment director Russ Mould points out that Peltz (Brooklyn Beckham’s father-in-law) has turned his attention to Rentokil after losing a battle with Disney:

Mould says:

Having failed to catch a mouse at Disney, Nelson Peltz is now chasing rats at Rentokil. Shares in pest control specialist Rentokil surged as it emerged activist investor Nelson Peltz’s Trian vehicle had acquired a stake in the business.

“Now a top 10 shareholder in the firm, Peltz is likely to pursue a big shake-up of a company which has struggled in comparison with its US peer Rollins, both in share price terms and financial performance.

“Given Rentokil does a large chunk of its business across the Atlantic this could include a push to shift its primary listing to the US, which would be another blow to the prestige of London as a listing venue. Trian pursued a similar approach with Ferguson which made the move in 2022.”

UK banks are also rising, with Lloyds up 1.9%, while retailer Marks & Spencer are up 2%

Updated

Here’s a neat thread of the key points from today’s UK GDP report, from James Smith of Resolution Foundation:

The big picture, Smith adds, is the UK’s weak productivity over the last 14 years:

When the UK growth report was released at 7am, we flagged that production output fell in April, by 0.9%.

This fall was driven by a 1.4% drop in manufacturing output – and that was principally due to a 6.1% fall in production of basic pharmaceutical products and pharmaceutical preparations.

Pharmaceuticals had grown 7.6% in March, so clearly it’s a volatile part of the economy.

April’s stagnation is, hopefully, a blip in the UK’s economic recovery from last year’s short, shallow recession, City economists say.

Philip Shaw of Investec says that poor weather was “at least partly” the cause of the economy stalling in April, adding:

This follows a run of firmer outturns over Q1 this year (Jan +0.3% m/m, Feb +0.2%, Mar +0.4%), resulting in growth over the quarter of 0.6% as the economy escaped a very mild recession over H2 last year.

We consider though that April’s numbers represent a blip in the recovery story rather than the start of a new downturn and that activity will crank up a gear or two over the coming months as the special negative factors disappear.

Tom Pugh, the chief economist at audit, tax and consulting firm RSM UK, suggests the drop in growth in April is “a bump on the upward path”, rather than a return to stagnation.

Pugh explains:

Overall, today’s data reinforces our view that Q4 last year will represent the nadir of a particularly painful period of stagnation for the UK economy.

But Q1 represented a turning point.

The weakness in April is just a small bump in the road. Interest rate cuts are likely to come in the summer, growth should continue in the first half of this year, and pick up further after the summer and into 2025. Indeed, we’re expecting growth to average 0.3% q/q over the next year, a much stronger performance than the last five.

The Conservative Party point out that the economy did grow in the February-April quarter (as flagged earlier).

They’re also sticking to the PM’s claim the economy is turning a corner (despite April’s stagnation resembling a cul-de-sac rather than a motorway).

A Conservative Party spokesman says:

“Today’s figures show our economy grew by 0.7% in the three months to April.

There is more to do, but the economy is turning a corner and inflation is back down to normal.

This election is choice. Under the Conservatives, we can keep the economy growing with our clear plan to cut taxes on work, homes and pensions, or we can risk all that progress with Labour’s £2,094 of tax rises on every working family.”

Reminder: Sir Keir Starmer has rejected that tax rise claim as “absolute garbage”:

In another sign of economic weakness, furniture retailer DFS has issued its second profit warning of the year this morning.

DFS blamed much of the drop on delays to deliveries and higher shipping costs caused by the Red Sea crisis.

It told shareholders that the upholstery market is “very weak” and that since its last financial results in March:

…consumer demand in the upholstery sector has remained challenging and Red Sea routing issues have persisted resulting in delays to customer deliveries and higher freight costs.

DFS, which owns 118 shops across the UK, said it expected pre-tax profits of £10m-£12m for the year ending 30 June 2024, well down on the £20m-£25m predicted in March.

The lack of growth in April will make it hard for Rishi Sunak to repeat his controversial claim that the UK economy is going ‘gangbusters’.

As the Financial Times puts it this morning:

In his campaign appearances ahead of the snap July 4 election, Sunak has frequently cited Britain’s first-quarter growth of 0.6%, which ended a brief technical recession, as a sign of the country’s economic strength.

The prime minister has sought to persuade voters that the UK is enjoying “gangbusters” growth — a word he ascribed to the ONS, but which the statistics agency said was not intended as a comment about the overall state of the economy.

The “gangbusters” line was used by the ONS’s chief economist in a briefing with journalists in May, when the UK officially exited recession, and led to an investigation:

Here’s more from shadow chancellor Rachel Reeves (who we heard from earlier) on the news that the economy flatlined in April:

Reeves says:

“Rishi Sunak claims we have turned a corner, but the economy has stalled and there is no growth.

“These figures expose the damage done after 14 years of Conservative chaos.

“We are now in the third week of this General Election campaign and in that time the Labour Party has set out its plan to grow the economy by bringing back stability, unlocking private sector investment and reforming our planning system.

“All the Conservatives are offering is more of the same, with a desperate wish list of unfunded spending promises that will mean £4,800 more on people’s mortgages. Rishi Sunak’s plan is a recipe for five more years of Tory chaos.

“It’s time for change. The election on July 4 is a chance to vote Labour so we can end the chaos, turn the page and rebuild our economy.”

Economy did grow over the last quarter

We really mustn’t forget that monthly GDP data can be very volatile.

Quarterly growth figures give a better picture; on that basis, the economy grew by 0.7% in the three months to April compared with the three months to January.

Simon French, economist at investment bank Panmure Gordon, has posted a chart showing monthly GDP fluctuates, partly due to ‘events’ such as bank holidays, funerals, and the weather:

The Bank of England is unlikely to cut interest rates at its next meeting, on 20 June, despite the economy flatlining in April, predicts Suren Thiru, ICAEW economics director:

“These figures suggest that the UK economy stumbled noticeably in April as poor weather and the lagged impact of previous interest rate rises weakened key drivers of GDP, notably manufacturing and construction.

“This lacklustre outturn should be the low point, with the uplift to people’s incomes from weaker inflation likely to drive output higher in the coming months, aided by the expected boost to consumer activity from Euro 2024.

“The longer-term outlook will be heavily influenced by the extent to which whoever wins the general election is able to tackle the long-standing structural issues holding back our economy, including poor productivity and high economic inactivity.

“Despite these disappointing GDP figures, a June interest rate cut looks improbable with the Bank of England likely to be a little wary of shifting policy in the middle of a general election campaign.”

The City agrees. This morning, the money markets indicate there’s juat a 9% chance of a rate cut next week.

Another blow to UK construction as wet weather hit builders

April was another poor month for the UK construction sector, today’s GDP report shows.

Monthly construction output is estimated to have decreased by 1.4% in April, its third consecutive monthly fall.

New work (eg: building new houses) shrank by 1.9%, while repair and maintenance dropped by 0.8%).

Bad weather was clearly a factor, as was the squeeze on the property sector from high interest rates.

Clive Docwra, managing director of property and construction consultancy McBains, says today’s digures are “a further blow for the industry”, which remained in recession in Q1 2024.

“A close to two percent fall in new work across the board highlights the continuing caution shown by investors being reluctant to commit to new projects while so many economic uncertainties remain. New work in private housing in particular remains in the doldrums, seeing a fall of more than four percent.

“Many in the industry are crossing their fingers for a post-election boost, but today’s figures show that whichever party forms the next government has a job on its hands to restore confidence and encourage growth.

Emma Fildes, founder of the buying agency Brick Weaver, points out that the main contributor to the monthly decrease in construction activtiy was “private housing new work”:

Michael Wynne, director of the sustainable housebuilder Q New Homes, says::

“Construction output is still shrinking, and the industry once again has the unwanted distinction of being the weakest sector in a weak economy.

“Today’s data is disappointing on virtually every level. The contraction isn’t just confined to certain subsectors of the construction industry either, with seven out of nine heading in the wrong direction.

“And while April’s poor weather – which delayed work on many building sites – might explain the sharp drop in that one month, April was no anomaly. The less volatile quarterly measure of output also shows a 2.2% contraction – the sixth time in a row it has been stuck in reverse.

Updated

NIESR: UK economy remains fragile

The next government must focus on structural reforms, and ways to boost public and private investment, to get the economy growing faster, says Hailey Low, associate economist at the National Institute of Economic and Social Research:

Today’s subdued GDP figures signal that the UK remains fragile on its route to a sustained economic recovery.

However, the broader perspective remains an economy grappling with stagnation as low productivity and high economic inactivity curtail growth potential. Structural reforms and policies to boost public and private investment should be the focus for the next government, to enter a new era of higher economic growth.”

Reeves: So much for turning the corner

Rachel Reeves, Labour’s shadow chancellor, has posted that today’s GDP data dents the prime minister’s claim that the economy has turned a corner:

Rishi Sunak claims we have turned a corner, but the economy has stalled and there is no growth.

The Conservatives have failed.

It’s time for change.

Updated

TUC slams “worst government for growth in modern times

TUC general secretary Paul Nowak says:

“Our economy is slowing yet again. This has been the worst government for growth in modern times – and working people have paid the price.

“Real wages are still worth less than 2008. Unemployment is rising at the fastest rate in the G7. And economic inactivity is at record levels.

“The Conservatives can spin all they like. But the last 14 years have been dismal for growth and living standards.

“They have turned Britain into a stagnation nation.”

The lack of growth in April shows the need to rebalance the UK economy in favourof working people, argues Unite general secretary Sharon Graham:

“Once again, the latest GDP figures show how far away we are from the kind of high economic growth that politicians keep promising is over the next hill. The hard truth is there won’t be any return to significant growth unless we get to grips with the UK’s collective bargaining and under-investment crises.

“It’s crunch time. If it wants to avoid yet more managed decline the next government will have to make different choices. Simply restoring collective bargaining to 1996 levels would increase GDP by 2.8%.”

Digging into today’s GDP report, we can see that the “information and communication” sector was the fastest-growing part of the services economy in April.

It grew by 2.3% in April, driven by growth of 3.2% in computer programming, consultancy and related activities, as well as growth of 1.7% in telecommunications and 4.9% in publishing.

But at the other end of the scale, output in consumer-facing services fell by 0.7% – driven by a drop in activity in the retail sector (as bad weather kept people away from the high street).

Rainy April weighed on growth

Wet weather in April derailed the economy’s growth push, experts are explaining this morning.

Lindsay James, investment strategist at Quilter Investors, says:

“The great British weather can be thanked for today’s poor GDP figures, as persistent rain has kept consumers from spending and caused economic growth to grind to a halt for the month with no growth registered. With rainfall in April 55% higher than average and the wettest April since 2012, it is perhaps no surprise to see the economy struggle as a result, with sectors such as retail, construction and pubs all severely impacted.

“Whilst the weather has thankfully improved of late, likely boosting May’s reading, the second quarter is off to a slow start and has a lot of catching up to do if it is to match the 0.6% growth seen in the first quarter.

Ben Jones, lead economist at the CBI, says the cost of living squeeze, as well as the rain which bucketed down in April, also hit growth:

“After one of the wettest Aprils since records began it’s no surprise that rain dampened consumer spending, with many households also feeling the pinch from higher prices and bills.

“But consumers and firms alike are going to start to feel the benefit of lower inflation, which in turn should boost confidence and support spending as we head into a summer packed with major entertainment and sports events, like the Euros.

April’s GDP reading is the worst since last December, when the economy also stagnated, and ends a three-month run of growth:

Stagnating economy 'hardly great news' for Sunak

Paul Dales, chief UK economist at Capital Economics, says:

The stagnation in GDP in April doesn’t mean the economic recovery has been extinguished, but it’s hardly great news for the Prime Minister three weeks ahead of the election.

Happily, Dales doesn’t believe the economy is “on the precipice” of another recession; he points out that other indicators, such as the activity PMIs, suggest the economy is still expanding.

Chart: No growth in April

Services sector grew, but production and construction weakened

Britain’s economy was dragged down by the factory sector, and by the building sector, in April.

The ONS says:

  • Services output grew by 0.2% in April 2024, its fourth consecutive monthly growth, and also grew by 0.9% in the three months to April 2024.

  • Production output fell by 0.9% in April 2024 following growth of 0.2% in March 2024, but grew by 0.7% in the three months to April 2024.

  • Construction output fell by 1.4% in April 2024, its third consecutive monthly fall, and fell by 2.2% in the three months to April 2024.

Updated

UK GDP REPORT RELEASED

Newsflash: the UK economy stagnated in April, a blow to Rishi Sunak’s claim that it has turned a corner.

UK GDP was unchanged month-on-month in April, new data from the Office for National Statistics shows, following growth of 0.4% in March.

That is in line with City expectations, and shows the economy struggled to maintain momentum in April after leaving recession in the first quarter of 2024.

Although the services sector grew, there was a contraction in production (which include manufacturing) and across the construction sector.

Updated

abrdn: GDP report will influence voter thinking

Today’s GDP report will paint a picture of the UK domestic economy, says Thomas Watts, investment analyst at abrdn Portfolio Solutions, and one which the electorate will pay attention to:

GDP is often considered the broadest measurement of the health of an economy, gauging the change in the total value of all goods and services produced by a country. With the UK having just exited a shallow recession with economic growth having re-entered positive territory, many will be hoping that the trend can continue.

The data also takes on added significance as it acts as one of the final pieces of big economic data before the upcoming general election and will be sure to influence voter thinking when heading to the polls.

Updated

The Euro 2024 men’s football tournament could give the UK economy a lift this summer.

A survey from the British Retail Consortium (BRC) has found that 6% of shoppers expect to buy a new TV or electronic device to watch the tournament, which begins on Friday, and in which both England and Scotland are playing.

Some 13% of people plan to spend more on groceries, beer, wine and spirits and takeaways to enjoy while watching the Euros; retailers could also benefit from merchandise sales.

Kris Hamer, director of insight at the BRC, says:

After sluggish spring sales, shoppers are expected to kick off their summer spending at the Euros. Here’s hoping England and Scotland can make it all the way to the final.”

🤞🤞

On an annual basis, the UK economy is forecast to have grown by 0.6% in the year to April, down from 0.7% in the year to March.

That would be a sluggish performance, reflecting the drop in GDP recorded in the second half of 2023.

Introduction: It's UK GDP Day

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

Rishi Sunak’s claim that “the economy has turned a corner” is about to be tested.

New gross domestic product data, due at 7am, will show how the UK economy fared in April.

It’s the last official healthcheck on UK economic growth before the election, a day after we learned that unemployment rose in the February-April quarter.

The City, on balance, expect no growth during the month, in which bad weather hit retail sales spending.

A Reuters poll of economists found that the consensus forecast is for 0% change in GDP in April. But there’s a range of predictions – from an optimistic +0.2% growth to a gloomy -0.3%.

Even the top of those forecasts would be a slowdown compared with March, when the UK grew by 0.4%, helping the economy exit recession.

Deutsche Bank’s chief UK economist, Sanjay Raja, is among those predicting stagnation in April, saying:

After a thumping end to Q1-24, we expect the UK economy to start out flat as we enter Q2-24. UK GDP, we think, will likely stall in April, weighed down by falls in both the services and manufacturing sectors.

Risks are skewed to a slightly stronger print based on our nowcasts.

Jefferies’ economists Modupe Adegbembo and Mohit Kumar expect growth of 0.2% in April, telling clients:

Growth momentum remains robust in the UK, but monthly numbers tend to be volatile and impacted by factors such as weather. In April, the UK saw one and a half times more rain than usual which is likely to have dampened activity in construction and services.

The agenda

  • 7am BST: UK GDP report for April

  • 7am BST: UK trade report for April

  • 7am BST: German CPI inflation report for May

  • 1.30pm BST: US CPI inflation report for May

  • 7pm BST: US Federal Reserve sets US interest rates

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