UK GDP flatlines as PM Sunak pins election campaign on economy

Economy

New high rise tower blocks under construction and old towers in Rotherhithe and beyond to Bermodsey seen over the River Thames on 16th January 2024 in London, United Kingdom.
Mike Kemp | In Pictures | Getty Images

LONDON — U.K. economic growth ground to a halt in April, according to flash figures published on Wednesday, stalling the muted rebound from last year’s recession mere weeks ahead of a national election.

Economists polled by Reuters had expected growth to flatten, after the economy expanded by 0.4% in March.

The picture was slightly brighter on a longer timeframe, with gross domestic product up 0.7% in the three months to April.

Construction output declined 1.4% in its third straight fall, while production output was down 0.9%. Growth continued in the U.K.’s dominant services sector, which expanded by 0.2%.

The U.K. had already eked out moderate growth in each of the first three months of the year, leading to an exit from a shallow recession for the first quarter as a whole.

Lindsay James, investment strategist at Quilter Investors, attributed the April slowdown to recent gloomy weather.

“Persistent rain has kept consumers from spending,” James said in an emailed note.

“Whilst the weather has thankfully improved of late, likely boosting May’s reading, the second quarter is off to a slow start and has a lot of catching up to do if it is to match the 0.6% growth seen in the first quarter.”

Rate cut outlook

The quarterly growth reported last month had fueled bets on the Bank of England beginning interest rate cuts in June, but market expectations have shifted significantly since then.

The Bank of England meets to decide the next steps of its monetary policy on June 20. Traders see little chance of a rate cut announcement this month, instead looking toward August or September.

Labor data released on Tuesday showed U.K. unemployment unexpectedly rose to its highest level in two and a half years, while wage growth came in at a higher-than-expected 6%, presenting a mixed picture for monetary policymakers.

Figures also published on Wednesday showed the U.K.’s value of goods imports increased by 8.2% in April, as the value of exports was flat.

The fresh economic data could serve as political ammunition as the country heads for a general election in just over three weeks. The economic record of the incumbent Conservative Party and its rival Labour’s proposed tax and spend plans are key battlegrounds of the campaign. Prime Minister Rishi Sunak has highlighted the recent fall in U.K. inflation in speeches.

George Roberts, head of dealing at Ebury, said that the trade figures would come as a blow to Sunak, as he strives to get U.K. exporters on side after a “challenging few years.”

“The financial challenges faced by exporters since Brexit, the Covid-19 pandemic, and the Ukraine war seem to have stuck despite the government’s efforts to push for non-EU trade deals like the [Comprehensive and Progressive Agreement for Trans-Pacific Partnership] and more recently with Texas,” Roberts said by email.

Labour’s economy spokeswoman Rachel Reeves said, in the wake of the Wednesday data: “Rishi Sunak claims we have turned a corner, but the economy has stalled and there is no growth.

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