UK economy shrinks in March as prices rise
The UK economy shrank in March as households began to feel the impact of rising prices and cut down on spending.
The economy contracted by 0.1% in March after no growth in February, the Office for National Statistics (ONS) said.
Darren Morgan, director of economic statistics at the ONS, said people are spending less in shops and cutting down on car journeys due to higher fuel prices.
Although the economy contracted in March, it grew by 0.8% overall in the first three months of the year, which was driven by hospitality and travel industries recovering from coronavirus pandemic restrictions.
However, the Bank of England has warned the UK faces a “sharp economic slowdown”, with prices rising at their fastest rate for 30 years, driven by soaring fuel, food and energy costs.
The Bank has forecast that inflation – the rate at which prices rise – could reach more than 10% by the end of the year.
Mr Morgan said trading in the retail sector had fallen “well below expectations” in March, with people cutting spending on “big ticket, non-essential items”.
He said there was also a large fall in fuel sales as people reduced the amount of car journeys they took due to the high cost of fuel at the pumps, driven by soaring global oil prices.
“The other industry we saw very much struggling is the motor trade industry. They are really struggling at the moment,” he said.
The Society of Motor Manufacturers and Traders has said March marked the “weakest” for new car registrations since 1998, as supply chain problems continue to hamper carmakers.
Mr Morgan said a survey by the ONS of 40,000 businesses found over half had seen an increase in the price of wholesale materials and goods, but fewer than half of those firms were passing the costs on.
“They are absorbing those rises and you do have to question how sustainable that is on an ongoing basis,” he said.
Many businesses expect the price of goods to increase further, and “their big concern is the energy prices,” Mr Morgan added.
Dr Jackie Mulligan, expert on the Government’s High Streets Task Force and founder of the local shopping website, Shopappy, said: “Having gone from no growth in February to negative growth in March, the economy is in a state of extreme turmoil. It doesn’t surprise me in the slightest that the services sector was the main contributor to March’s fall in GDP as the high street is at an all-time low. The Queen’s speech did little to fuel confidence in the economy and this exceptionally bleak data adds to my concerns.
“Worst of all, we are probably only at the beginning of the economic storm. We need Government action to help alleviate the countless strains businesses are under. Things like a windfall tax on the energy companies are an obvious place to start.
“Hardest hit are family businesses who employ over 14 million people and support a whole ecosystem that is feeling increasingly fragile, with small business owners being doubly hit in their household and work finances. We are urging people with less to spend to at least spend wisely by shopping locally. It feels like we are very much ‘alone together’ facing the second wall of a hurricane after the ravages of Covid.”
The economic outlook is extremely concerning as UK businesses grapple with the latest interest rate hike, rising costs, inflation, supply chain issues, and forecasts of a 2022 recession. While the past two years have made businesses more resilient to setbacks, this resilience is limited. According to our research, half of businesses are concerned about their turnover and, as a result, are raising their own costs, cutting back on investment and laying off workers. If viable businesses do not receive the assistance they urgently require from the government, it will be a case of insolvency, not affordability. Businesses power our economy by generating new wealth, driving innovation and creating new jobs. Without adequate support, this will only serve to stifle economic growth and productivity even further. The Chancellor is going to have an even bigger job on his hands come the autumn budget if something isn’t done now to address these challenges.”