The latest UK GDP statistics released by the ONS this morning shows no growth in UK GDP in April. This was in line with expectations however comes after the UK recorded its fastest growth for two years between January and March.
With UK inflation data out next week ahead of the Bank of England MPC meeting on Thursday 20th, these data have relevance not just for investors and market watchers but also for political parties ahead of the general election in July.
Investment and economics experts have been sharing their reaction to today’s UK GDP data and the implications of it as follows:
Commenting on these data, Lindsay James, investment strategist at Quilter Investors said: “The great British weather can be thanked for today’s poor GDP figures, as persistent rain has kept consumers from spending and caused economic growth to grind to a halt for the month with no growth registered. With rainfall in April 55% higher than average and the wettest April since 2012, it is perhaps no surprise to see the economy struggle as a result, with sectors such as retail, construction and pubs all severely impacted.
“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. However, despite this renewed slowdown, it will likely not be enough for the Bank of England to cut interest rates next week. Wage inflation remains elevated and consumer price inflation is expected to tick higher in the coming months, and thus the BoE won’t want to deviate from its strategy just yet.
“The election campaign has also seen Labour and the Conservatives putting forward proposals to increase economic growth in an incredibly restricted fiscal environment. Given tight public finances, it is unlikely substantial growth will be conjured up without significant additional borrowing, something neither party, nor the bond market, is particularly keen on. With the result looking increasingly like a foregone conclusion, Labour will hope its plans to invest in ‘green’ jobs and infrastructure will help the economy break out of its’ current state of malaise, but without the necessary fiscal headroom this is likely to be an uphill struggle.”
Danni Hewson, head of financial analysis at AJ Bell commented: “April’s lack of growth should come as no surprise. ‘Rain stopped play’ is the best way to describe things as builders shunned roof tops and shoppers deserted high streets in favour of their warm, dry sofas.
“The long-term trend for construction is more worrying. Output has fallen for three consecutive months and there’s little surprise that so much focus has been placed on housebuilding by political parties, all hoping their policies can deliver a sustained growth spurt for the UK.
“But no growth is better than negative growth and taken alongside the latest wage figures there doesn’t appear to be much evidence to suggest that Bank of England ratesetters will feel ready to change course quite yet. And there’s already a frisson of excitement in the air that big events like the Euros and Taylor Swift’s Eras tour will help deliver a decent boost to the economic picture by the time we get the half-year result.
“With inflation cooling and wage growth now being felt in people’s pay packets there is a sense that the momentum seen at the start of the year is likely to return. The trick will be keeping the engine running smoothly, putting in the right kind of fuel and the right kind of investment to get us out of neutral and into a much higher gear.”
Luke Bartholomew, Deputy Chief Economist, abrdn, said:
“UK monthly GDP growth took a little breather in April after a strong month of expansion in March. The series is notoriously volatile month to month and often swung around by non-fundamental factors like the weather. So it is important not to put too much stead in just one month of data and look at the broader trend across several months. And on that measure, a picture of solid recovery from last year’s recession emerges. This should continue as the year progresses as households benefit from strong real income growth amid falling inflation. All of this should do little to impact the Bank of England’s current thinking about policy, with a cut in June very unlikely, but a move in August still on the cards so long as inflation data behave.”
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services said: “Following a strong start to the year, the UK’s pace of growth stalled at the start of 2024’s second quarter.
“Flatlining economic activity in April can be partially attributed to an early Easter and its associated economic boost in March, as well as slow service sector output in part due to industrial action by rail workers. The automotive sector also experienced reduced activity, which was paired with adverse weather impacting the construction industry.
“On a more encouraging note, April’s slow figures are likely to be a blip rather than a prevailing trend. Inflationary pressures on UK households continue to ease, and the incremental impact of the April 1st increase to the minimum wage will also begin to appear in economic indicators in the months to come.
“Today’s subdued data is unlikely to change the minds of the Bank of England’s rate-setters, as the Monetary Policy Committee (MPC) has made clear that lower interest rates will be contingent on inflation’s continued decrease and developments in the labour market.”
Derrick Dunne, CEO of YOU Asset Management, has also commented on this morning’s GDP figures saying: “The fact the economy has flatlined in the wake of a loosening jobs market portends that we could be in for a rate cut in the near future. Employment data looked to be slackening in yesterday’s figures and despite strong wage growth – still playing catchup to an extent with inflation – price rises are now close to target.
“This all suggests that the Bank of England could join its Canadian and EU peers in a rate cut to attempt to boost growth. The construction sector in particular suffered from bad weather. This area of the economy tends to be a bellwether of wider performance, which the MPC will be watching closely.”
Richard Pike, chief marketing and sales officer at Phoebus, said: “Zero growth in GDP is a little surprising after three consecutive months of growth in January, February and March. With unemployment falling last month, we enter the election process in a very interesting economic position with no clear view of any real change.
“It makes the question of next week’s Bank of England interest rate decision an interesting one. With many worldwide rates now moving southwards, there was some positivity towards the Monetary Policy Committee cutting rates. The mixture of positive and negative economic data coming out from the UK makes a rate cut decision a hugely important flip of a coin for the industry.
“It’s disappointing to see construction falling for the third consecutive month, especially during a time of housing crisis. With all parties committing to building housing in their manifestos, you really have to consider how real this aspiration really is.”
Mr Sarwar Khawaja FRSA, chairman, executive board, Oxford Business College, said: “These GDP figures represent one of Rishi Sunak’s last rolls of the dice as he tries to prove that the economy has turned a corner before the election – and it looks like he’s rolled a one.
“With both production and construction output both firmly in reverse, it’s clear that high interest rates and fragile demand are continuing to bite in the ‘real’ economy. It’s concerning to see that manufacturing output slumped by 1.4% in April, with pharmaceuticals, food and drink amongst the worst hit.
“There was a glimmer of hope from the UK’s reliable services sector, which continues to grind out modest growth even as other sectors stall.
“Growth in professional, scientific and technical activities and the information and communication sector shows that the knowledge economy remains an engine of the wider economy.
“The painful truth is that the UK economy has precious little momentum, weighed down by the cost of borrowing and stubbornly high inflation. With growth bumping along the bottom month after month, the outlook is far from rosy. “Time is running out for the Government to convince the business community that its economic plan is working.”
