GDP: UK economy shrank 0.1% in March

he economy went into reverse in March for the first time since the end of last year as hard-stretched consumers began reining in their spending.

The Office for National Statistics (ONS) said gross domestic product (GDP) rose by 0.8 per cent between January and March, down from growth of 1.3 per cent in the previous three months and the weakest since the first quarter of last year.

The figures showed that on a monthly basis, GDP fell by 0.1 per cent in March after growth stalled in February and rose by 0.7 per cent in January.

The monthly figure was worse than expected in the City . The dominant services sector which accounts for 80 per cent of output, fell by 0.2 per cent in the month. Production, which includes manufacturing, also dropped 0.2 per cent while construction grew by 1.7 per cent. Retail was the worst hit services sector with a 2.8 per cent fall.

It will increase fears that Britain is heading for another recession as a result of the cost-of-living crisis.

GDP was last negative in December when the Omicron variant of the coronavirus hit at the peak of the party season just before Christmas.

The Government had hoped for a strong bounce after virtually all pandemic restrictions were lifted in February but the Russian invasion of Ukraine has sent energy and food prices soaring.

Chancellor Rishi Sunak said the economy had recovered quickly from the worst of the pandemic and growth in the first few months of the year was strong “faster than the US, Germany and Italy, but I know these are still anxious times”.

Mr Sunak said the recovery was being disrupted by Vladimir Putin’s “barbaric invasion of Ukraine and other global challenges”.

He said the Government was helping people “where it can”.

“Growth is the best way to help families in the longer-term so as well as easing immediate pressures on households and businesses, we are investing in capital, people and ideas to boost living standards in the future.”

Rain Newton-Smith, Chief Economist at the employers body the CBI, said: “The economy barely kept its head above the water during a volatile start to the year, but times look set to get that bit tougher.

“Cost pressures and rising prices have tightened their grip, with both businesses and households feeling the pinch. The end result is a weaker economic outlook.

“It’s clear that the most vulnerable households and energy-intensive businesses may need further support, so the government should keep this under review.

“But the only way to build a resilient economy, one that can withstand price shocks, is a relentless focus on growing productivity and potential output. Business is the solution to both, so should be adequately supported to invest and grow.”

Alice Haine, Personal Finance Analyst at online investment platform Bestinvest, said: “With less money in the pockets of everyday workers, keeping a lid on spending is becoming a daily battle for many households. As consumers tighten their belts – cutting out extras from their budgets such as Netflix subscriptions, overseas travel or meals out – the drop in expenditure will eat further into GDP growth.

“At the lower end of the income scale, you only need to see the heightened demand for food banks to understand how frighteningly real this cost-of-living crisis is.”

The knock to consumer confidence has already damaged high street spending with retail sales slumping in April.

The Bank of England warned last week that growth is likely to peter out this year and could go into recession next year. It is forecasting a 0.25 per cent fall in GDP in 2023.