Brace for pain: UK economy falls deeper into the red shrinking 0.3% in April with Rishi admitting ‘challenges’ – as CBI warns the country faces full-blown recession unless ministers act to boost business
- ONS revealed that the UK economy fell further into the red in April with 0.3% fall
- The dip in GDP comes after 0.1% reduction in March with fears of worse to come
- British households are facing the biggest squeeze on incomes for a generations
The UK economy has fallen deeper into the red shrinking 0.3 per cent in April as businesses sounded the alarm about a full-blown recession.
GDP was down for the second month in a row after a 0.1 per cent dip in March, underlining the ‘Stagflation’ threat as prices soar.
Although the strong bounceback from Covid means there there has still been growth overall so far this year, Rishi Sunak admitted there are ‘challenges’ – with predictions of the worst squeeze on incomes in a generation.
The CBI has urged Boris Johnson and the Chancellor to take ‘vital action’ in the coming months needed to keep UK plc running.
The group warned there is a risk that the economy would be a ‘distant second’ to politics in the coming months because of the cost-of-living crisis, airports struggling to cope, planned national rail strikes and ‘Groundhog Day’ battles with the EU over the Northern Ireland Protocol.
The CBI downgraded its growth outlook to 3.7 per cent for this year from 5.1 per cent previously, and just 1 per cent in 2023 from 3 per cent.
Last week the OECD think-tank predicted that the UK will flatline next year, recording the worst performance in the G20 except for sanctions-hit Russia.
GDP was down for the second month in a row after a 0.1 per cent dip in March, underlining the ‘Stagflation’ threat as inflation soars
The CBI has urged Boris Johnson (right) and the Chancellor (left) to take ‘vital action’ in the coming months needed to keep UK plc running
All three main sectors suffered a fall in output for the first time since January 2021, according to the Office for National Statistics (ONS) data
Darren Morgan, director of economic statistics at the ONS, said: ‘A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.
‘Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.
‘These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March.’
All three main sectors suffered a fall in output for the first time since January 2021, according to the Office for National Statistics (ONS) data.
April’s drop in GDP was the biggest contraction since January 2021.
Output contracted by 0.3 per cent in the main services sector, largely due to the ending of the Government’s Covid-19 Test and Trace programme and lower vaccination activity.
In a crumb of consolation, the ONS said that with the Test and Trace and vaccines impact stripped out, GDP would have risen by 0.1 per cent in April.
CBI under fire over Northern Ireland comments
Tony Danker (pictured), CBI’s Director-General, angered ministers by telling them to ‘stop acting unilaterally’ to fix trade problems in Northern Ireland
The CBI came under fire last night after it urged ministers to abandon plans for a new law to prevent the EU undermining the Northern Ireland peace process.
In a provocative intervention, CBI chief Tony Danker said it was time for the Government to ‘stop acting unilaterally’ to fix post-Brexit problems in Northern Ireland.
His call came as ministers prepared to publish new Brexit legislation today designed to prevent the EU driving a wedge between Northern Ireland and the rest of the UK.
Separately, the CBI warned that Britain was heading for a ‘household recession’ as families slash spending amid the cost of living crisis.
The new Northern Ireland legislation includes plans to scrap most EU checks on goods sent to the province and the downgrading of the European Court of Justice to an advisory role.
Ministers hope the plans will halt the disruption to supplies caused by the checks, reduce political tensions in Northern Ireland and persuade the DUP to re-enter power-sharing.
But Mr Danker said the plan could lead to ‘all kinds of trade disputes’.
But there were also declines in the manufacturing and construction sectors, down 1 per cent and 0.4 per cent respectively, with manufacturers in particular noting the impact of soaring prices and supply chain woes.
Mr Sunak said: ‘Countries around the world are seeing slowing growth, and the UK is not immune from these challenges.
‘I want to reassure people, we’re fully focused on growing the economy to address the cost of living in the longer term, while supporting families and businesses with the immediate pressures they’re facing.
‘We have a plan to turbocharge productivity through investment in capital, people and ideas, so everyone across the country can benefit from a strong, healthy economy.’
David Bharier, Head of Research at the British Chambers of Commerce (BCC), said: ‘The fall of 0.3 per cent in April, following a 0.2 per cent decrease in March, highlights the increasing stress the UK economy is under. All main sectors have seen a fall in growth, the first time since January 2021.
‘This decline is the inevitable outcome of surging inflation, supply chain disruption and widespread skills shortages.
‘Businesses from all sectors are facing unprecedented rises in raw material costs, soaring energy bills, and wage pressures. The introduction of an increase to employer National Insurance Contributions in April has only further added to firms’ woes.
‘This declining output comes off the back of two years of significant damage sustained by small businesses, whose weakened cash positions mean that they are in a far worse position to stomach further pressure. The global aspects to all these problems mean they are likely to weigh heavily on the UK’s prospects for growth for some time.’
Shadow chancellor Rachel Reeves said: ‘These figures are extremely worrying and will add to the concern families are still feeling about their own finances and the long term health of our economy.
‘They will also add to growing concern about abysmal growth and plummeting living standards under the Conservatives.’
Overnight Tony Danker, CBI director general, unveiled their latest forecasts.
He said: ‘Let me be clear – we’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession, and even if we don’t, it will feel like one for too many people.
‘Times are tough for businesses dealing with rising costs, and for people on lower incomes concerned about paying bills and putting food on the table.
‘It’s as clear as day that business investment is one of the few bright spots left in our economy.
‘We’ve had weeks of politicking with the country standing on the brink of a summer of gridlock.
‘There is only a small window until recess. Inaction this summer would set in stone a stagnant economy in 2023, with recession a very live concern.
‘We need to act now to install confidence.’
The CBI called for measures including steps to alleviate labour and skills shortages.
Rain Newton-Smith, CBI chief economist, added: ‘This is a tough set of statistics to stomach. War in Ukraine, a global pandemic, continued strains on supply chains – all preceded by Brexit – has proven to be a toxic recipe for UK growth.
Last week the OECD think-tank predicted that the UK will flatline next year, recording the worst performance in the G20 except for sanctions-hit Russia
‘The bottom line is that the outlook for UK exports remains far worse than our worldwide competitors. This has got to change for the better.
‘Business and government must work together to seek growth globally. As demand shrinks, competition for revenue increases. UK business must be more confident in identifying new markets and utilising all the tools at their disposal – be it from the private sector or public sector.
‘Government also has an integral role to play. Against the backdrop of the rising cost of doing business and continuing supply chain pressures, easing trade flows is in everyone’s interests. It’s not just about lowering non-tariff trade barriers in Europe and signing FTAs.
‘Post-Brexit regulatory reforms to support growth, innovation and sustainability can build competitiveness. But divergence for the sake of it could introduce further red tape and friction undermining that mission.
‘Moreover, we can and must do more domestically to help our exporters too. Now that R&D allocations are known, let’s get that funding out the door quickly to the Advanced Research and Invention Agency and others.’
In an interview with The Sunday Times, Mr Danker launched a wide-ranging attack on the Government, saying ministers were too focused on political issues instead of the economy. ‘You have Conservative politicians pushing for their own ideological favourites in return for supporting the PM,’ he said.
‘Some want tougher action, some want Thatcherite ideas such as right-to-buy, some want harsher rules on immigration, some want to slash personal taxes. And that’s working against the right economic picture.
Sir Iain Duncan Smith criticised the CBI’s response to the new Brexit legislation as ‘hopeless’
‘On Brexit we need to stop acting unilaterally… the minute we behave unilaterally we lose the moral high ground and start to escalate towards all kinds of trade disputes.’
Mr Danker’s comments sparked an angry response from Tory MPs, who questioned if the organisation has accepted the Brexit referendum result.
One Cabinet minister told the Daily Mail: ‘It is eccentric for the CBI to call for measures to support growth and then oppose lifting obstacles to trade between Great Britain and Northern Ireland.
‘But then the CBI has long been in thrall to the EU.’
Former Tory leader Sir Iain Duncan Smith said: ‘Fighting losing battles is the motto of the CBI. Industry in Northern Ireland is suffering and this is their hopeless response.’ Former Cabinet minister David Jones said: ‘The CBI should be working to help those companies that are having huge difficulties in shipping goods to Northern Ireland because of the way the EU is behaving.
‘It took a long time for them to repair their relations with the Government after Brexit and I am surprised they are sticking their oar in again.’
Today sees the publication of the new legislation designed to ease the problems caused by the EU’s implementation of the Northern Ireland protocol.
Northern Ireland Secretary Brandon Lewis yesterday insisted the new measures would be ‘lawful’ despite warnings from critics that they risk breaking international law by overriding parts of Boris Johnson’s Brexit deal. The Government is expected to publish a summary of the legal advice produced by Attorney General Suella Braverman.
It is believed Ms Braverman will argue that the EU’s ‘disproportionate and unreasonable’ imposition of checks is undermining the functioning of the Good Friday Agreement. Brexiteer Sir Bernard Jenkin backed ministers’ decision to take unilateral action, saying the EU is ‘trying to stuff the UK and force us back into alignment’.
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