The UK economy unexpectedly contracted in March as the cost of living squeeze saw consumers cut back on spending.
Gross domestic product fell 0.1 per cent from February, when growth was flat, the Office for National Statistics said Thursday. It meant the economy expanded just 0.8 per cent in the first quarter, less than the 1 per cent forecast by economists.
While the quarterly growth takes output back above its pre-pandemic level, it’s almost certain to mark the high point of the year, with the worst bout of inflation since the 1980s expected to see the economy rapidly lose momentum and possibly slide into recession.
In March alone, the services sector and manufacturing both saw output shrink 0.2 per cent. Consumer facing services dropped 1.8 per cent.
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Bloomberg Economics expects the economy to contract in the second quarter after households were hit by a surge in energy bills and a tax increase in April. Further pain looms in October, when the Bank of England expects utilities to increase gas and electricity bills by a further 40 per cent.
The central bank last week forecast inflation would exceed 10 per cent in October, five times its target, and policy makers are in the midst of one of their fastest ever tightening cycles to bring price gains under control. Still, that spell bad news for future growth, with the BOE predicting the economy will barely expand at all across 2023 and 2024. – Bloomberg
