UK financial system flatlines in blow to Rishi Sunak’s hopes of restoration

The UK financial system flatlined in April, held again by moist climate, because the indicators of a restoration from final yr’s recession started to fade.

In a blow to Rishi Sunak’s hopes of signalling a robust bounceback earlier than the overall election on 4 July, the Workplace for Nationwide Statistics (ONS) mentioned month-to-month development slowed after a 0.4% enhance in March.

The financial system was unable to take care of its momentum after being weighed down by the struggling retail sector, a downturn in manufacturing and a drop in development output.

The 0.0% development determine matched the forecast by Metropolis economists, who blamed the month’s heavy rains for difficulties confronted by employees on constructing websites and the lack of shoppers on the high street.

The shadow chancellor, Rachel Reeves, mentioned: “Rishi Sunak claims now we have turned a nook, however the financial system has stalled and there’s no development.”

Sunak mentioned in March that the financial system was “bouncing back” from a downturn in 2023. Responding to Wednesday’s figures, a spokesperson for the Conservative social gathering mentioned: “There may be extra to do, however the financial system is popping a nook and inflation is again all the way down to regular.”

Manufacturing output fell by 1.4% month on month in April, whereas development exercise was 1.4% decrease and retailers misplaced 2% of their commerce. These declines have been balanced out by a 2% rise throughout the entire companies sector, boosted by rises in IT and communication companies, skilled companies (1.2%), and humanities and leisure (2.6%).

The final secretary of the Trades Union Congress, Paul Nowak, mentioned the financial system’s stagnation was inflicting long-term hurt to households’ incomes. “Our financial system is slowing but once more,” the TUC chief mentioned. “This has been the worst authorities for development in fashionable instances – and dealing folks have paid the value.”

He mentioned evaluation of official figures confirmed that annual development had averaged 1.5% since 2010, the worst efficiency for a authorities because the nice despair. Wages, after taking inflation under consideration, have been price lower than 2008, Nowak added, and unemployment had risen on the quickest fee within the G7 this yr. “The Conservatives can spin all they like. However the final 14 years have been dismal for development and residing requirements.”

Paul Dales, the chief UK economist on the consultancy Capital Economics, mentioned the financial system might start to develop once more through the summer time. “Regardless of the stalling of the restoration in April, the twin drags on financial development from larger rates of interest and better inflation will proceed to fade all year long. That may generate a little bit of an financial tailwind for the subsequent authorities,” he mentioned.

Separate surveys of personal sector companies present most areas of the financial system have expanded month on month because the starting of the yr.

Figures launched final month confirmed the financial system grew by 0.6% in the three months to the end of March – the strongest fee of quarterly development because the finish of 2021 – confirming the UK had formally exited recession after the financial system contracted within the second half of final yr.

Within the three months to the top of April development was 0.7%, the identical stage forecast for the entire yr by the Worldwide Financial Fund in its biannual outlook in spring.

The Organisation for Financial Co-operation and Growth (OECD) just lately downgraded its prediction for UK development this yr from 0.7% to 0.4%. The Paris-based organisation mentioned longer-term points confronted by the UK, together with a serious abilities scarcity, excessive costs within the retailers and elevated rates of interest, accounted for the gloomy outlook.

Suren Thiru, the economics director on the Institute of Chartered Accountants in England and Wales, mentioned April’s zero development fee in nationwide earnings, or gross home product (GDP), was unlikely to encourage the Financial institution of England to chop rates of interest at its assembly later this month. “Regardless of these disappointing GDP figures, a June rate of interest lower seems to be inconceivable, with the Financial institution of England prone to be a little bit cautious of shifting coverage in the midst of a common election marketing campaign,” he added.