Pressure mounts for summer mini-budget amid recession fears | Economic growth (GDP)
Pressure is mounting on the government to present an emergency summer mini-budget after recession fears were heightened by a surprise contraction in the economy in March.
Evidence that the cost of living crisis was raging even before the arrival last month of more expensive energy bills and higher taxes led to a sharp sell-off in stocks and a fall in the value of the pound to a two-year low against the US dollar.
The Labor Party, TUC and British Chambers of Commerce have all been pushing for Chancellor Rishi Sunak to act urgently after the release of official figures showing a marked decline in consumer spending in March.
Boris Johnson promised the government would “do things” in the short term to ease pressure on living standards without giving any indication of what the measures might be. His pledge came amid growing speculation that the economy would slide into recession – two successive quarters of negative growth – in the coming months.
According to the Office for National Statistics, the UK economy contracted by 0.1% in March after stagnating in February. Services, which account for around 80% of gross domestic product, contracted 0.2%, with retail sales down 1.4% and spending on cars collapsing more than 15%. Output, which includes manufacturing, also fell 0.2%, while construction rebounded 1.7% after the disruption caused by Storm Eunice in February.
The economy grew 0.8% in the first three months of 2022, but only because activity rebounded strongly in January after restrictions imposed at the end of 2021 to prevent the spread of the Omicron variant of Covid-19 were lifted. 19.
Ed Monk, Associate Director at Fidelity International, said: “Any momentum in the UK economy coming out of the pandemic appears to be running out of steam. The numbers are subject to revision, but it’s clear the UK faces a serious fight to avoid recession this year.
Paul Dales, UK economist at Capital Economics, said: “It now looks likely that GDP will contract in the second quarter. And with the full brunt of the cost of living crisis yet to be felt, the chances of a recession have just increased. Even so, with price pressures continuing to build, the Bank of England may have no choice but to add to household woes by raising interest rates further.
Rachel Reeves, Labour’s shadow chancellor, said gross domestic product figures would heighten public concern and urged the chancellor to produce an emergency mini-budget, a call echoed by Britain’s Chambers of Commerce.
“Anything less than rushing back with an emergency budget to help ease the pressure of the cost of living crisis is a failure of this Conservative government,” Reeves said.
Responding to the weaker than expected growth figures, Sunak said: “The UK economy recovered quickly from the worst of the pandemic and our growth in the first months of the year was strong, faster than the United States, Germany and Italy, but I know these are still anxious times.
“Our recovery is disrupted by Putin’s barbaric invasion of Ukraine and other global challenges, but we continue to help people where we can.”
In the City, the FTSE 100 index closed down 114 points at 7,233 – a drop of more than 1.5% – while the pound at one point fell below $1.22 against the US dollar and was trading at levels last seen in the early months of the pandemic.
CBI Chief Economist Rain Newton-Smith said: “The economy barely kept its head above water during a volatile start to the year, but times look set to get a little tougher.
“Cost pressures and rising prices have tightened their grip, with businesses and households feeling the pinch. The end result is a weaker economic outlook.
Darren Morgan, director of economic statistics at the ONS, said: “The UK economy has grown for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth over the past three months been the weakest in a year.”