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ONS said GDP fell 0.3% in April and is now 0.9% above pre-pandemic levels.

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The pound fell against the dollar and the UK stock market plunged on Monday after depressing figures that the UK was approaching a recession.

The economy suffered an unexpected decline in April, driven by soaring commodity prices, interest rate hikes and record fuel costs.

Experts say the data is now catching up with several challenges the UK faces and further problems are likely to arise as trade relations with the EU deteriorate.

UK gross domestic product (GDP), representing the total goods and services produced, fell 0.3% in April, following a 0.1% decline in March and 0% growth in February, according to official figures.

Markets reacted strongly to the news, with London’s FTSE 100 leading index falling 1.5% and the pound dropping 1.5 cents against the dollar. Sterling was trading at $1.216 when the London Stock Exchange was closed for a day.

As the S&P 500 fell again, Wall Street screens across the Atlantic flashed red, losing 2.4% of its value in morning trading.

The index is currently in a bear market and has lost a fifth of its value since it recently peaked in January. The tech-focused Nasdaq has lost more than 30% of its present value since its recent peak.

High-growth tech stocks like Peloton and Zoom have been hit hard in recent weeks, wiping out huge gains from the early days of the pandemic.

The sell-off occurred as the central bank raised interest rates to calm the economy and slow inflation.

There are growing fears that central banks will be forced to act more hawkish or that inflation will be difficult to control.

In April, UK domestic energy rates surged 54% as workers received national insurance increases. Meanwhile, food and fuel prices soared due to severe supply disruptions caused by Russia’s invasion of Ukraine.

The UK Statistics Office (ONS) said on Monday that Britain’s GDP was 0.9 per cent above pre-pandemic levels but 0.4 per cent below the high reached in January. Analysts expected the gross domestic product (GDP) to rise 0.1% in April.

ONS said it was the first time GDP fell for a second straight month since March and April 2020, when the pandemic first took its toll and plunged the economy.

The categories of human health and social welfare activities have made a major contribution to the decline in economic output.

(ON)

Production in the services sector, which accounts for more than three-quarters of the UK economy, fell 0.3%. This is mainly due to the end of the government’s Covid-19 testing and tracking program and reduced immunization activity.

Ending the free test reduced GDP by 0.5%. If testing and tracking and vaccine effects were eliminated, production would have risen 0.1% in April, ONS said.

Activity also declined in two other major sectors of the economy. Manufacturing fell 1% as businesses report that they have been hit hard by large price hikes and supply delays. Construction output fell by 0.4%.

Last week, the OECD Group of Wealthy Countries released a forecast predicting that the UK will lag behind all developed countries except Russia next year as growth dips to zero.

Analysts are divided on whether the UK will avoid a recession, the second straight quarter of negative growth.

EY Item Club’s chief economic adviser, Martin Beck, said the outlook was not good.

He added that UK interest rates are likely to rise again later this week, adding that already severe pressures on household spending power will be negatively impacted by global supply chain friction and the recent weakness in inflation.

The Bank of England is due to release its latest interest rate decision on Thursday and the market expects further gains.

The Banks Monetary Policy Committee is working to moderate inflation, which it expects to hit 10% by the end of the year, well above its 2% target.

Further increases are expected to further exacerbate household budgets and slow consumer spending, straining the broader economy.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said private sector activity has helped offset a sharp decline in government spending related to the coronavirus and a new weakness in manufacturing. But the chances of a recession are still low, he said.

Household real disposable income will increase in both the third and fourth quarters. The Prime Minister announced an additional $5 billion in grants for the quarter, equivalent to nearly 2% of projected earnings for the quarter.

So, if energy prices stop rising and households begin to use their savings cautiously, we expect quarterly GDP growth of around 0.6% in the third quarter and 0.5% in the fourth quarter, he added.

Sources

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2/ https://www.independent.co.uk/news/business/news/gdp-figures-covid-decrease-ons-b2099495.html

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