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LONDON, ENGLAND – AUGUST 19: Commuters queue for buses outside Victoria underground train station which is closed due to strike action on August 19, 2022 in London, England. Tube workers represented by the Rail Maritime and Transport (RMT) union are conducting a daylong walkout due to a pension dispute. Meanwhile, bus drivers with the Unite union are starting a two-day strike in a separate pay dispute. Tomorrow also brings another 24-hour strike affecting England’s rail service, in a summer characterised by strike action. (Photo by Chris J Ratcliffe/Getty Images)
Britain’s economy swung back to growth at the end of spring, but the recent turmoil in the mortgage market and the prospect of the Bank of England hiking interest rates aggressively could push the country back toward recession.
Official figures out today from the Office for National Statistics (ONS) showed gross domestic product – a measure of all goods and services made in the UK – jumped 0.2 per cent in April, up from a 0.3 per cent contraction in March.
That was slightly below the City’s expected 0.3 per cent growth rate.
April’s expansion was mainly driven by the services sector – which generates around £2 in every £3 of Britain’s output – motoring and Brits headed to the pub.
“Bars and pubs had a comparatively strong April, while car sales rebounded and education partially recovered from the effect of the previous month’s strikes,” Darren Morgan, director of economic statistics at the ONS, said.
Britain’s economy has outperformed forecasts since the turn of the year, steering clear of a much tipped recession.
Economists at the Bank of England, International Monetary Fund, Organisation Co-operation and Development and the Office for Budget Responsibility had all projected the UK was on course for a tough recession this year. All have ditched that call now.
But, a series of data that have shown the economy is holding up well in response to the Bank of England’s twelve successive interest rate increases has raised concerns about inflation hanging around.
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Such an upward move would heap more pressure on households and businesses, raising the spectre of recession once again.
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“While the outlook has improved, the UK economy still faces major headwinds. In stark contrast to the US and Eurozone, inflation has proven more persistent than originally anticipated, continuing to put pressure on households’ income,” Yael Selfin, chief economist at KMPG UK, said.
“As a result, the UK will also likely see the Bank of England continue its rate hiking cycle, putting further pressure on both households and businesses as they face higher borrowing costs,” she added.
Inflation – running at 8.7 per cent – and higher interest rates, now at 4.5 per cent, are already crimping the economy by knocking spending and business investment.
Chancellor Jeremy Hunt said: “High growth needs low inflation, so we must stick relentlessly to our plan to halve the rate this year to protect family budgets.”
More to follow.