UK Economy Contracts 0.3% over April
The UK economy contracted 0.3% in April, far below market expectations of +0.2%, signalling yet another concerning sign for the health of the UK economy. This morning’s data also suggests that the UK economy is just 0.9% higher than pre-pandemic levels, in comparison to 1.3% earlier in the year.With the Bank of England expecting Q2 GDP to come in at 0.1%, April’s print seemingly undermines these predictions with the prospects of an overall contraction during this year’s second quarter now appearing highly likely. This is significant given that the Bank of England had previously forecasted quarterly GDP to fall in Q4, however today’s data raises investor’s fears that a technical recession (two consecutive contractions in quarterly growth) will come sooner than previously anticipated.
Given that today’s print follows a contraction of 0.1% during March, prospects of a 50bpt hike at the next monetary policy meeting on Thursday have been slashed as the market weighs in on how the BoE will be concerned that too greater monetary tightening could derail the UK economy even further. As such, this morning’s data has reinforced the general market consensus of a 25bpt rise on Thursday, bringing the base rate to 1.25%.
Growing Fears. Falling Growth
Similarly, just a few weeks ago the IMF forecasted that the UK will have the second lowest level of growth amongst the G20 during 2023 reducing the UK’s growth forecast from 4.7% to 3.7% over 2022 while the Bank of England’s Governor, Andrew Bailey stated that the economy would likely begin to contract in Q4 2022 while falling 0.25% over 2023.
As such, this morning’s alarmedly high print – and future expectations of rising inflation and stagnant growth – reconfirms how stagflation will continue to be a pressing issue for the BoE, No11 and the 28m households across the UK.
US CPI Hits 8.6%
The Michigan Consumer Sentiment Index also saw a major drop from 58.4pts in April to 50.2pts in May, well below market expectations of 58pts signalling consumer concerns over the rising cost of living and socio-economic conditions.
The Week Ahead
Have a great day.