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Dismal week for data as UK GDP flatlines in April, ending positive spell of growth

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  • 12/06/2024
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Dismal week for data as UK GDP flatlines in April, ending positive spell of growth
The UK economy stagnated in April, with GDP (gross domestic product) estimated to have shown zero growth in the month as heavy wind and rain dampened activity.

The UK’s monthly real GDP is estimated to have shown no growth in April, following growth of 0.4% in March.

GDP measures the value of goods and services produced in the UK. It estimates the size of – and growth in – the economy.

The nil growth ends a spell of positive output recorded in the months after the UK dipped into a “short and shallow” recession at the end of 2023.

According to the Office for National Statistics (ONS), services output grew by 0.2% in April, its fourth consecutive monthly growth.

However, this was offset by a 0.9% fall in production output, following a 0.2% decline in March.

Meanwhile, construction output fell by a higher 1.4% in April, marking its third consecutive monthly decline.

However, the ONS noted that real GDP is estimated to have grown by 0.7% in the three months to April 2024, compared with the three months to January 2024. Service also grew by 0.9% in the quarter and production by 0.7%, while construction fell by 2.2%.

Further, when looking at GDP this April compared to the same month last year, it also grew by 0.6%.

 

‘GDP stagnates as rain stopped play’

“No growth is better than negative growth”, according to Danni Hewson, head of financial analysis at AJ Bell, who added that April’s lack of growth “should come as no surprise”.

Hewson said “rain stopped play” is the best way to describe things “as builders shunned roof tops and shoppers deserted high streets in favour of their warm, dry sofas”.

She added: “Taken alongside the latest wage figures, there doesn’t appear to be much evidence to suggest that Bank of England rate-setters will feel ready to change course quite yet. And there’s already a frisson of excitement in the air that big events like the Euros and Taylor Swift’s Eras tour will help deliver a decent boost to the economic picture by the time we get the half-year result.

“With inflation cooling and wage growth now being felt in people’s pay packets, there is a sense that the momentum seen at the start of the year is likely to return. The trick will be keeping the engine running smoothly, putting in the right kind of fuel and the right kind of investment to get us out of neutral and into a much higher gear.”

 

‘Economic tailwind for the next Government’

Paul Dales, chief UK economist at Capital Economics, said the stagnation “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”.

Dales said: “It is unlikely to suggest the economy is on the precipice again. Indeed, the 1.4% m/m fall in construction output and 2% m/m decline in retail activity suggest that a chunk of the weakness was due to April’s unusually wet weather and will therefore be reversed in May. What’s more, other indicators, such as the activity PMIs, suggest the economy is still expanding.”

He added: “Even modest 0.1% m/m rises in GDP in both May and June would generate a 0.4% q/q rise in GDP in Q2 as a whole. That would be down from Q1’s 0.6% q/q gain. But it would be [a] bit higher than our forecast of 0.3% q/q and, as it would be stronger than the Bank of England’s forecast of a 0.2% q/q rise, it further diminishes the already small chances of an interest rate cut next Thursday.

“Overall, despite the stalling of the recovery in April, the dual drags on economic growth from higher interest rates and higher inflation will continue to fade throughout the year. That will generate a bit of an economic tailwind for the next Government.”

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