NEWS

UK GDP shrinks in March as consumers cut spending

May 12, 2022

Show caption The deepening cost of living crisis is denting UK consumer spending.br Photograph: Yui Mok/PA

Economic growth (GDP)

Spending in shops drops steeply as ONS data shows economy struggling before higher energy bills and tax rises

Thu 12 May 2022 02.40 EDT

Britain’s economy contracted in March as consumers cut back on spending in the face of the rising cost of living, the latest official figures show.

Activity fell by 0.1% after flatlining in February – an even weaker performance than economic experts had been predicting – with spending in shops suffering particularly badly.

Data from the Office for National Statistics showed the economy struggling even before households were hit by higher energy bills and tax increases in April and will increase pressure on Rishi Sunak to ease the inflationary squeeze.

Sunak said: “The UK economy recovered quickly from the worst of the pandemic and our 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.

“Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can.”

Rachel Reeves, Labour’s shadow chancellor said the figures for gross domestic product would increase the public’s worries and urged the chancellor to produce an emergency mini-budget – a call echoed by the British Chambers of Commerce.

In March, activity fell by 0.2% in services and production – two of the three main sectors of the economy – with only construction expanding.

Rain Newton-Smith, CBI chief economist, 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.”

The ONS said the economy grew by 0.8% in the first three months of 2022 but this was entirely due to a strong performance in January as restrictions to combat the Omicron variant of Covid 19 were eased.

Darren Morgan, ONS director of economic statistics. said: “The UK economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year.

“This was driven by growth in a number of service sectors as the economy continued to recover from Covid-19 effects, including hospitality, transport, employment agencies and travel agencies. There was also strong growth in IT.”

“There were, though, some downwards effects from other services, including retailing, wholesaling and car sales and also health, due to continuing decreases in the Test and Trace service and vaccination programmes.

“Our latest monthly estimates show GDP fell a little in March, with drops in both services and in production. Construction, though, saw a strong month thanks partly to repair work after the February storms.”

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