UK economy contracts in March as cost of living crisis bites

by | May 12, 2022

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The UK economy contracted in March amid rising prices, following no growth the month before, according to figures released on Thursday by the Office for National Statistics.
GDP shrank by 0.1%, versus expectations for no change, leaving the economy just 1.2% above its pre-Covid level. The data showed that the main contributor to the monthly decline was a 0.2% contraction in the services sector.

February’s GDP was revised down to no growth from an initial estimate of 0.1% growth.

During the first three months of the year growth slowed to 0.8% from 1.3% in the previous quarter, versus expectations for 1% growth. This marked the lowest quarterly growth in a year.

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 downward 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.”

Paul Dales, chief UK economist at Capital Economics, said: “The risk of recession has just risen, although strong price pressures will probably mean the Bank of England will raise interest rates further.”

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