Stalled UK growth ‘is a blip’ not a new downturn, City experts say
Latest data from the Office for National Statistics showed that GDP did not advance in the month — in line with City forecasts — following a 0.4% surge in March.
Heavy rainfall during the month was blamed for keeping shoppers away from the high street and delaying work on construction sites.
Output from the retail sector slumped by 2%, and the construction sector was down by 1.4%.
The lack of growth was seen as a political blow to Rishi Sunak after he claimed that the economy was “turning the corner”, but most analysts said it would not impact longer term prospects for the UK or change the expected timing of an interest rate cut. It was the fourth consecutive month when GDP did not fall since the start of the year, after the shallow recession in the second half of 2023.
Philip Shaw, chief UK economist at investment bank Investec, said: “We consider that April’s numbers represent a blip in the recovery story rather than the start of a new downturn and that activity will crank up a gear or two over the coming months as the special negative factors disappear.
“Post-tax household incomes should assist the positive trend — in real terms disposable income rose by 2.4% over the year to Q4 last year, as inflation moderated faster than pay growth.
“Figures due on 28 June will provide estimates for Q1, which will include the effects of the first of the recent double header of 2p reductions in employee National Insurance Contributions. In brief, the income background is likely to be supportive of consumer spending this year and our GDP forecast for 2024 as a whole remains 1%.”
Consultants RSM said: “There are three reasons why we aren’t especially worried about flat GDP in April. “First, growth was never likely to keep up the stonking 0.4% month on month pace achieved in March, which probably had something to do with seasonal adjustments around the early Easter. As such, some fall back was always likely, and won’t be repeated in the coming months. Indeed, growth was still a solid 0.7% on a three month on three month basis.
“Secondly, the weather in April really was horrendous. It was the wettest April in 12 years, which resulted in a very sharp drop in retail spending … The weather picked up markedly in May, and so far in June, so we should see a rebound in last month’s data.
“Thirdly, all the survey data suggests things have improved since April. Consumer and business confidence continues to rise, inflation probably fell again, and consumers will benefit from the huge increase in the national minimum wage and national insurance tax cuts that came in with it.”