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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK GDP falls for second month running; stocks and pound slump amid recession fears – as it happened

United Kingdom GDP Recession CBI United States Economy BDO Tony Danker
The City of London in London, as stocks and the pound slide
The City of London in London, as stocks and the pound slide Photograph: Andy Rain/EPA

Closing summary

Time to recap.

Global stocks are slumping as fears over high inflation and central bank tightening rock the markets.

The MSCI All-Country World Equity index has now down over 20% from its record closing high last November, on a day in which shares, bonds, commodities, most currencies and crypto assets all tumbled.

The US S&P 500 index is now down 3%, while in London the FTSE 100 index has shed 1.8% or 130 points to 7185.

The pound is under more pressures too, after the UK economy contracted unexpectedly in April. It’s now down over 1.5 cents at $1.215, the lowest since May 2020.

The oil price dipped, as a new Covid-19 outbreak in China raised fears of fresh lockdowns.

Eurozone government bond prices slid too, on concerns that the European Central Bank plans to start raising interest rates next month.

Craig Erlam of OANDA explains:

We all sensed the change in tone from ECB President Lagarde last week; the central bank is now extremely concerned about inflation and knows it needs to act urgently (by its own standards) and aggressively.

European stocks have been tumbling ever since while European yields have taken off again, with the Italian 10-year today hitting 4% for the first time since early 2014. Almost 10 years after Draghi’s famous “whatever it takes” speech, the ECB has a real job on its hands managing surging yields in the periphery

The US yield curve inverted - a sign that the US economy could be heading for recession.

The surge in US inflation to 40-year highs on Friday has unnerved investors.

As Kit Juckes of Société Générale puts it:

The US CPI data wasn’t that much worse than expected but the market was over-invested in the idea that inflation has peaked. We’re still seeing waves of price pressure crashing through the economy one after another, and while each wave may be ‘transitory’, they keep on coming and will do so until US demand has softened significantly.

The policy challenge is that the Fed has no idea how much monetary tightening is needed and will only find out it has done too much, long after the event. And we know what happens then.

There are widespread losses in crypto, with Bitcoin tumbling by 20% since Friday night, as cryptocurrency lending platform Celsius Network halted withdrawals because of “extreme market conditions”

Here are today’s main stories, first on GDP....

....the economy.....

And also:

Back in Europe, Italian and Spanish bond prices are sliding.

This has pushed the yield on Italian 10-year bonds hit 4% today for the first time since 2014.

The selloff somes after the European Central Bank ended its asset purchase stimulus programme, and said it planned to raise interest rates in July and September.

Markets are tumbling as recession worries add to inflation woes, writes Fawad Razaqzada, market analyst with City Index and FOREX.com.

Global stocks, government bonds, cryptos, commodity dollars, emerging market currencies, metal prices and even crude oil have all dropped, he points out, with Wall Street now joining the selloff with gusto.

A number of things are causing the rout, but “it all boils down to inflation”, Razaqzada explains.

Very hot inflation. This is causing panic among global central banks, as they rush to tightening their policies in order to help bring price levels down.

Investors, in turn, are seeing their portfolios suffer sizable losses, causing them to reduce their risk, which is further fuelling the sell-off.

As we found out on Friday, US May CPI came in at 8.6% year-over-year, which was up from 8.3% recorded in April and defied expectations of 8.3%. Core CPI wasn’t very hot, but it beat forecasts, nonetheless. It fell to 6.0% from 6.2% but was still above forecasts of 5.9%.

It is not just the US where inflation is becoming a big problem, but the rest of the world as well. In eurozone, for example, CPI is at a record high of 8.1%, while in Tukey it is in excess of 70 percent!

Boeing is leading the fallers on the Dow, slumping 7%, followed by Salesforce (-4.7%) and Chevron (-4.5%).

Conglomerate 3M is the only one of the 30 Dow stocks not in the red - up just 0.3%

S&P 500 opens in bear market territory

Wall Street is open.... and shares are sliding as angst over rising inflation and slowing growth hits markets.

The S&P 500 index of US stocks has tumbled by 2.4%, putting it on track to close in a bear market (more than 20% off its record high).

The S&P 500 is now at its lowest since March 2021, as investors brace for sharp increases in US interest rates.

The Dow Jones index of 30 large US companies dropped by 652 points, or 2%, while the tech-focused Nasdaq has slumped by 2.8%

A worker measuring the diameter of a coil of aluminium at the Neuf-Brisach Constellium aluminium products company’s production unit in Biesheim, Eastern France.
A worker measuring the diameter of a coil of aluminium at the Neuf-Brisach Constellium aluminium products company’s production unit in Biesheim, Eastern France. Photograph: Vincent Kessler/Reuters

The price of aluminium has hit a six-month low, on fears of lower demand as the world economic recovery weakens.

The latest Covid-19 outbreak in Beijing, and fears that higher interest rates could hit global growth, knocked aluminium to its lowest this year.

The metal, used in cars, aircraft, consumer electronics, powerlines, construction and cans, fell as much as 3.2% to $2,595 per tonne.

Edward Meir, analyst at ED&F Man Capital Markets said several factors were pushing aluminium down:

“The landscape looks rather depressing... elevated inflation, the ongoing war in Ukraine, stubborn energy prices and a Chinese government that is keeping the country’s growth bottled up.”

Back in February, aluminium hit its highest since 2008 on fears about tight supplies and rising demand.

Updated

The UK Petrol Retailers Association insist that petrol stations are being ‘unfairly scapegoated’ over the surge in prices at the pumps.

Gordon Balmer, Executive Director of the PRA, says rising wholesale fuel prices are to blame:

“The briefings provided by Government spokespeople to the media indicate that Ministers do not understand how fuel prices are set. We have contacted the Secretary of State for BEIS on multiple occasions offering to meet and explain fuel pricing. However, we are yet to receive a response.

“By law the 5p per litre fuel duty cut has to be passed on – and it has been. Petrol retailers have been unfairly scapegoated for rises in the wholesale price of fuel over which they have no control.

“We welcome the Competition and Markets Authority investigation, as it will confirm not only that the 5ppl fuel duty cut has been passed on but that competition between forecourts remains vigorous and that our members are operating on razor thin margins.

“If the Government wants to ease the burden of pump prices on motorists, they should cut fuel duty by a much more substantial margin, just as many other governments of European countries have done.”

Updated

The UK competition watchdog has agreed to launch a “short and focused review” of petrol station pricing.

The CMA says it will provide advice to government on ways to improve outcomes for consumers across the UK, after business secretary Kwasi Kwarteng asked for an ‘urgent’ examination of the retail fuel market.

In a reply to Kwarteng, chief executive Andrea Coscelli said the CMA will also consider consider what further work may be necessary.

High road fuel prices are causing significant concern for the millions of consumers and businesses who rely on being able to afford to fill up their vehicles.

As you note, global factors, including the war in Ukraine, have been the principal driver of recent trends. But if competition is not working well in the retail fuel market, pump prices will be even higher than they need to be.

Downing Street are pointing out that the 0.3% drop in UK GDP in April was partly due to the end of mass Covid-19 testing.

The Prime Minister’s official spokesman told reporters that “when we exclude the falling numbers of Covid tests, the rest of the economy saw positive growth of 0.1% in April”.

“So we are focused on growing the economy to reduce the cost of living and we will continue to work to create the conditions for economic growth.

We think we have strong foundations within our economy which will help it to grow. We recognise there are strong headwinds as we emerge from this pandemic and with war in Europe. That is challenging not just for the UK but for countries across the world.”

That point about test-and-trace is true.... but (as explained earlier) Test and Trace also boosted GDP through the pandemic.

Economics journalist Duncan Weldon has written a good thread on today’s disappointing UK GDP report:

UK ramps up gas and oil exports to EU amid Russia’s war in Ukraine

The UK has drastically increased the volume of natural gas being pumped to the EU amid Russia’s war in Ukraine, powering a record monthly rise in goods exports to the continent despite Brexit.

Figures from the Office for National Statistics show EU goods exports rose for the third consecutive month to £16.4bn in April, the highest monthly level in current prices since comparable records began in 1997.

Reflecting the impact of the war in Ukraine as EU nations seek to diversify energy supplies away from Russia, the data suggests the UK is acting as a hub for liquified natural gas (LNG) imports from the rest of the world before pumping it through pipelines to the continent.

UK fuel exports rose by £500m on the month, driven by gas and crude oil to the Netherlands and Ireland, in a sign of heightened demand on the continent to refill gas storage sites in the run-up to winter.

Much of the rise in total goods exports was driven by the rising value of fuel prices rather than volumes of other products. After adjusting for inflation, goods exports were the highest since December 2020, the last month before the Brexit transition ended.

The pound has sunk deeper into the red to a one-month low.

Sterling is now down 1.3 cents (or 1.1%) today at $1.218 against the strengthening dollar.

Worries about the UK economy are weighing on the pound, while the dollar is benefitting from expectations that US interest rates will rise even higher than thought, after inflation jumped again in May to 8.6%.

Crypto plunges as lender Celsius halts withdrawals

Cryptocurrencies are being hammed today after the lending platform Celsius Network has halted withdrawals because of “extreme market conditions”.

The selloff has sent Bitcoin sliding to its lowest since December 2020 to around $23,600 -- down around 19% compared with late last week.

The overall value of the digital asset market has now dropped back below $1tn (£820bn).

Celsius said in a blogpost it was “pausing” all withdrawals and transfers between accounts for its 1.7 million customers. The company offers customers high interest rates – as much as 18% – on their cryptocurrency deposits and pays the interest in crypto assets, which includes its own token, called CEL.

The platform said.

“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, swap, and transfers between accounts,”

“We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations.”

Here’s the full story:

Here’s our news story on hopes that the surge in petrol prices could finally abate:

Today’s market moves in two charts:

NIESR: UK economy could shrink 0.4% in Q2

The UK economy is likely to stagnate in May and June, meaning a contraction in the second-quarter of this year, predicts economic research institute NIESR.

Here’s their take on this morning’s drop in GDP in April:

  • Negative growth of 0.3% in April increases the chances of a recession, though this was largely driven by the end of the government’s Test and Trace programme rather than weakness in private demand.
  • The impact of rising energy prices, particularly on manufacturing, is likely to impede recovery in the coming months. We now forecast month-on-month growth to stagnate in May and June, leading to a decline of 0.4% in the second quarter overall.
  • Strong April growth in retail and hospitality suggest that some households at least have been able to use Covid-19 savings to weather the initial inflation shock. The government’s latest support package may also help avert a larger and longer-term fall in demand.

The cost of insuring European corporate debt against default has also risen today.

Reuters has the details:

Credit default swap indexes measuring the cost of insuring against European corporate bond defaults jumped on Monday to their highest since 2020 as markets sold off sharply after red-hot U.S. inflation data and a COVID-19 warning in China.

The spread on the iTraxx European Crossover index, which measures the cost of insuring exposure to a basket of sub-investment-grade European companies surged nearly 27 basis points (bps) to 525.6 bps, the highest since May 2020 when markets were gripped by the fallout of the coronavirus pandemic.

It has risen nearly 90 bps over the last week as inflation and growth fears, topped by the European Central Bank laying out its plans to remove stimulus, have hit risk assets.

The spread on the iTraxx European index, which measures the cost of insuring against investment-grade corporate bond defaults rose 5 bps to 104.5 bps, the highest since April 2020.

Inverted US yield curve flashes recession warning

The US bond market flashed a warning sign today that a recession might be coming.

The yield, or interest rate, on two-year US government debt briefly rose above the equivalent yield on 10-year bonds.

In normal times, the longer-dated Treasury bonds ought to trade at a higher rate than the shorter-dated ones, reflecting the greater risk of handing over your cash for longer.

If shorter-dated debt has a higher yield, it suggests that investors see trouble looming, and are selling short-dated bonds [yields rise when prices fall].

Generally, a flatter yield curve suggests that investors are expecting an economic slowdown, or even a recession, in which longer-term interest rates are subdued.

Here’s Bloomberg’s take:

A closely-watched part of the US yield curve inverted on Monday as investors dumped short-term debt on concerns that aggressive rate hikes will lead to an economic slowdown.

The US two-year yield exceeded the 10-year for the first time since early April. Short-term yields that are higher than long-term yields are abnormal, and are historically seen as heralding a potential recession.

Concern has been mounting that surging inflation will require more rapid Federal Reserve policy tightening, which in turn will reduce consumer spending and business activity. US inflation data on Friday rose to a fresh four-decade high, surprising economists.

Updated

Wall Street is set for further losses, with the tech-focused Nasdaq index down almost 3% in pre-market trading.

The Nasdaq had already lost around 28% since the start of this year, as surging inflation and rising interest rates punctured the high valuations of growth stocks.

Analysis: UK economy’s stagnation increases chances of recession

Stagflation has two elements to it: weak growth and rapidly rising prices. Britain already has the inflation; it is now getting the stagnation, our economics editor Larry Elliott writes:

In its May monetary policy report the Bank of England said it expected the economy to expand by 0.1% in the second quarter of 2022. Even this modest forecast now looks a stretch, since it would take growth of 0.4-0.5% in May and June to be achieved. On past form, the extra day’s holiday to mark the Queen’s platinum jubilee will alone reduce growth in the second quarter by 0.4 percentage points.

It now looks odds on that the economy will contract in the second quarter, and despite the £15bn of extra support provided by Rishi Sunak last month, the chances of a recession – two successive quarters of negative growth – have increased.

Even so, the inflationary part of the stagflation scenario means the Bank of England will still raise interest rates for a fifth time in a row later this week. The weakness of GDP makes it more likely it will opt for a 0.25-point increase rather than the more aggressive 0.5-point jump some in the City had been expecting.

UK fuel prices at new records

Petrol and diesel prices hit fresh record highs over the weekend.

The average price of petrol at the pumps hit 185p per litre on Sunday for the first time ever, while diesel reached a new record of 191.03p on Saturday.

This latest rise piles even more pressure on households and businesses, as pressure mounts on the government to make a further cut to duel duty.

Yesterday, business secretary Kwasi Kwarteng asked the Competition and Markets Authority to conduct an urgent review of the retail fuel sector.

The AA says that there may be some respite for petrol drivers soon.

The wholesale price of petrol heading to the forecourts has been lower than its pre-Jubilee peak for more than 10 days, according to the AA. On 1 June, it hit 100.17p a litre before tax, but is now around 96p a litre.

Diesel on its way to the retailer continues to increase in cost, going up from 93.0p a litre on 1 June to around 103.6p today.

Luke Bosdet, the AA’s fuel price spokesman, says:

Petrol price rises should be grinding to a halt, at least temporarily, by the end of the week. There may still be some forecourts yet to pass on the recent surge in costs.

If they continue to go up substantially afterwards, we will be intrigued to hear what excuses the fuel trade has this time. If prices keep going up, they will give the Government further justification in its call to the Competition and Markets Authority for an investigation.

“Diesel’s relentless surge in costs remains a nightmare, with its knock-on impact for the cost of delivery of goods and services, and therefore inflation.”

Worries about global growth, and China’s latest Covid-19 lockdowns, have knocked oil too.

Brent crude is down 1.6%, or $2 per barrel, at around $120/barrel this morning.

The UK’s FTSE 250 index of mid-sized companies has fallen over 2% this morning.

The FTSE 250 is more domestically focused than the FTSE 100, although the top faller is miner Ferrexpo.

The iron ore producer has slumped almost 10% after reporting that a Russian missile strike in southwest Ukraine has disrupted its barging operations that serve European customers.

Stocks hit by recession worries

European stock markets have tumbled to a three-month low, hit by fears over rising inflation, slowing growth, and Covid-19 outbreaks in China.

In London, the FTSE 100 index has dropped 1.4% or 103 points to 7213, the lowest in over three weeks.

Housebuilders, and hospitality companies such as hotel group Whitbread (-4.4%), are among the fallers, as April fall in GDP hit confidence.

The pan-European Stoxx 600 index has hit its lowest level since early March (when the Ukraine war sent shares sliding) down 1.5% at 416.37 points.

This follows heavy losses in Asia-Pacific markets, where investors were catching up with Friday’s rout in Europe and America -- after US inflation hit a 40-year high.

Investors are increasingly anxious that central banks will raise interest rates aggressively to cool inflation, crushing growth.

The US Federal Reserve is expected to raise borrowing costs by at least 50 basis points on Wednesday, as it tries to get a grip on soaring consumer prices.

Richard Hunter, Head of Markets at interactive investor, says hopes that we’d seen ‘peak inflation’ have been scuppered.

“The latest inflation print proved too hot to handle, prompting investors to scramble for cover in anticipation of a more aggressive set of central bank moves.

In the US, the inflation reading of 8.6% in May compared to the April number of 8.3%, scuppering hopes that inflation had peaked. As such, the Federal Reserve decision on Wednesday takes on added significance. While investors were relatively comfortable with a likely hike of 0.5%, the fresh inflationary pressure has had some questioning whether a rise of 0.75% could be on the table.

In turn, this would reignite concerns – which had never been far away – that a newly determined round of aggressive monetary tightening could crimp economic growth, to the extent that the spectre of recession emerges.

There’s also anxiety about China, after nearly 200 Covid infections were linked to a single bar in the capital Beijing. A government spokesman described the outbreak as “ferocious”, hitting optimism that China might fully reopen soon.

Authorities have began a three-day mass testing campaign of Chaoyang’s 5 million residents. About 10,000 close contacts of the bar’s patrons have been identified, and their residential buildings placed under lockdown.

Hunter says:

With easing restrictions only having been announced over the last few days, inevitably the news prompted concerns that demand and indeed consumer confidence would suffer a fresh blow, thus adding to the cocktail of factors which could inhibit global growth.

Updated

April’s contraction increases the risk of the UK slipping into recession, says Paul Dales of Capital Economics:

The 0.3% m/m fall in real GDP in April wasn’t as weak as it looks, but it nonetheless increases the chances that the economy is slipping into recession.

While this is unlikely to prevent the Bank of England from raising interest rates again on Thursday, it does increase the chances of a 25 basis point (bps) hike rather than the 50bps hike from 1.00% to 1.50% we are forecasting.

Updated

Environment secretary George Eustice has described figures showing the UK economy shrank by 0.3% in April as “disappointing”.

The minister told BBC Breakfast the war in Ukraine and other global pressures were having a “huge impact” on the world economy (via PA Media).

“As the world comes out of the pandemic there’s obviously a lot of global pressures, particularly inflation and obviously the events in Ukraine and that huge spike in gas prices is going to have a huge impact on the world economy.

“We’re starting to see that come through and obviously these are disappointing figures.”

Updated

Samuel Tombs of Pantheon Macroeconomics is hopeful the UK will avoid a full-blown recession.

He expects the economy will contract between April and June, but predicts the government’s £15bn cost of living package will support the economy later this year.

“A recession - two quarters of negative growth - remains unlikely.

“Households’ real disposable incomes should rise in both the third and fourth quarters now that the Chancellor has announced an extra £15bn in grants during these quarters, equal to nearly 2% of their likely income.”

Mazars: This feels like a recession for consumers

Consumers are slashing spending fast in the face of a ‘once in a generation’ cost of living squeeze, says George Lagarias, chief economist at accountancy firm Mazars:

UK GDP was negative, -0.3% for the second straight month in April.

The number should come as no surprise, as a dismal retail sales number had already set the tone for the month, falling at a pace comparable only to the first lockdown in 2020.

For an economy where consumption is so central, the signs going forward are disconcerting. Technically, we may not yet be in a recession, but for many consumers it certainly feels like one.

Faced with a once-in-a-generation cost-of-living crisis, consumers are curtailing unnecessary expenses fast, causing a demand shock to the market.

The pound has hit a four-week low against the US dollar this morning, dropping half a cent to $1.227.

Sam Cooper, vice president of market risk solutions at Silicon Valley Bank, says April’s disappointing GDP report put more pressure on sterling:

“Another installment of disappointing economic data will add to the mounting downward pressure on the pound.

GBPUSD opens the week on the backfoot as the bleak reality of low growth and ongoing political headwinds continue to take their toll on sterling.”

The ending of free Covid-19 tests means April’s UK GDP figures were always going to look “worse than reality”, says James Smith of ING.

But... that pandemic spending also gave GDP an ‘artificial’ boost in previous months, making the economy look stronger.

Smith explains:

Free Covid-19 testing stopped the previous month and according to the ONS that meant there was a 70% fall in test and trace activity. Pandemic-related health spending shaved a full 0.5 percentage points off GDP growth in April.

And if we strip that out, the headline 0.3% decline in monthly GDP should actually have been marginally into growth territory.

In short, just as health-related spending gave the level of GDP an artificial boost last year, helping the economy appear to recover to pre-virus levels more quickly than it actually had, these categories are now making the picture look superficially worse.

UK GDP
UK GDP Photograph: ING/ONS

Chancellor Rishi Sunak says the UK not alone in seeing a slowdown....

“Countries around the world are seeing slowing growth, and the UK is not immune from these challenges.

“I want to reassure people, we’re fully focused on growing the economy to address the cost of living in the longer term, while supporting families and businesses with the immediate pressures they’re facing.”

It’s true that the US economy, and France, both contracted in the first quarter of this year.

But... the OECD has forecast that Britain will be the slowest-growing G7 economy in 2023, hit by higher interest rates, higher taxes, reduced trade and more expensive energy.

Updated

Environment Secretary George Eustice has conceded there are “some real challenges ahead” after the UK economy shrank in April.

Eustice was asked on Sky News whether it was time for the Government to “stop maintaining that this is the fastest-growing economy in the G7” after GDP fell 0.3% in April.

He cited the recovery from the pandemic, and supply chain pressures as causes of the decline.

“We’ve known for some time this was going to be a challenge.

“We’ve got unemployment that’s at record lows, the lowest it’s been since 1974, but of course there are some real challenges ahead and these GDP figures are a reminder of those challenges.”

The NHS Test and Trace and COVID-19 vaccination programme detracted 0.5 percentage points from GDP growth in April 2022, the ONS explains:

This was driven by further falls in NHS Test and Trace numbers, which fell by 70%, reflecting the changes to the COVID-19 testing policy in England from April.

The vaccination programmes grew by 71% on the month on account of the spring booster campaign.

April’s UK GDP report is weaker than forecast, points out Andy Bruce of Reuters...

Economist Jumana Saleheen agrees it’s a negative surprise:

This chart shows how UK services, production and construction all contracted in April - the first time that’s happened in the same month since the Covid-19 lockdown of January 2021.

UK economy by sector

Updated

Labour: Drop in GDP is 'really worrying'

Labour’s shadow chancellor, Rachel Reeves, tweets that the 0.3% fall in GDP in April is ‘really worrying’:

The TUC agrees:

KPMG: Fall in output unlikely to be short-lived

April’s fall in GDP shows the UK economy could shrink in the current quarter - putting it on the brink of recession.

Yael Selfin, chief economist at KPMG UK, says:

“The overall outlook remains downbeat as the squeeze on consumer income is expected to weaken demand, and external headwinds intensify due to the deteriorating outlook among the UK’s main trading partners.

“The rest of Q2 could see an additional fall in GDP owing to the weakening momentum and the impact of the extended bank holiday.

“UK GDP fell by 0.3% in April, in part as a result of a fall in Covid related health spending but also due to further supply chain disruptions and weakening demand.”

April’s contraction means the UK economy is now only 0.9% larger than before the first Covid-19 lockdown in spring 2020, as this chart shows:

UK GDP
UK GDP Photograph: ONS

Key event

Darren Morgan, director of economic statistics at the ONS, explains that the winding down on test and trace, and surging business costs, led the economy to shrink in April:

“A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.

“Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.

“These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March.”

Updated

UK economy shrank by 0.3% in April

Breaking: The UK economy shrank in April, for the second month running.

GDP declined by 0.3% in April, adding to the 0.1% drop in March -- with services, production and construction all shrinking in April.

The Office for National Statistics reports that the reduction in NHS Test and Trace activity weighed on the economy, while supply chain problems hit factories.

The ONS says:

  • Services fell by 0.3% in April 2022 and these were the main contributors to April’s fall in GDP, reflecting a large decrease (5.6%) in human health and social work, where there was a significant reduction in NHS Test and Trace activity.

  • Production fell by 0.6% in April 2022, driven by a fall in manufacturing of 1.0% on the month, as businesses continue to report the impact of price increases and supply chain shortages.

  • Construction also fell by 0.4% in April 2022, following strong growth in March 2022 when there was significant repair and maintenance activity following the storms experienced in the latter half of February 2022.

  • This is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021.

Updated

The cost-of-living crisis has dragged business optimism to its lowest point in more than a year, accountancy firm BDO reports this morning.

BDO’s optimism index has fallen by 4.82 points to 101.93, the second consecutive month of decline, as bosses worry about continued inflationary pressure and supply chain disruption in the months ahead.

BDO partner Kaley Crossthwaite said:

“The fact that business optimism is now at the same level it was more than a year ago while the country was still experiencing coronavirus restrictions paints a worrying picture for the UK economy.

“Weakened consumer spending power is undoubtedly weighing heavily on businesses and will continue to curtail growth in the months ahead.”

CBI warns UK government over Northern Ireland protocol

The CBI has warned the government that its threat to override the Northern Ireland protocol is forcing companies to think again about investing in Britain and dragging down the economy.

Tony Danker, the director general of the CBI, said reaching a deal was in the best interests of the British economy as businesses and households struggle with the soaring cost of living and looming risk of recession.

“I don’t think it’s time for grandstanding; I think it’s time to do a deal. I’m firmly of the view the Europeans are being inflexible. At the same time, our measures – which may come on Monday – to take unilateral action in response are unhelpful.”

The head of the lobby group, which represents 190,000 companies across the UK, said renewed Brexit uncertainty triggered by the protocol dispute was hurting the British economy, and leading some companies not to invest in the UK.

Legislation giving ministers power to override parts of the Northern Ireland Protocol is due to be published in the House of Commons on Monday afternoon.

Introduction: UK GDP report due, as CBI warns of recession risks

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

We’re about to get a new healthcheck on the UK economy this morning as April’s GDP report is released.

The data, due at 7am BST, comes amid concerns that Britain could be heading towards recession, as the cost of living crisis hits households and businesses.

Analysts fear the report will show a weak economy.

Alvin Tan of RBC Capital Markets sets the scene:

The UK April GDP release today will capture the direct output impact of the ending of the UK’s Covid test-and-trace programme. We think that this will subtract around 0.6ppts from m/m GDP growth in April.

Even allowing for some growth in private sector activity, we still see monthly GDP growth of -0.4%. We currently see GDP growth flat for Q2 as a whole, but a larger-than-expected contraction in April would be difficult to claw back in subsequent months given the June holidays.

And here’s Michael Hewson of CMC Markets:

The latest GDP numbers for April are expected to show a weak economy, battered by the big jump in energy prices, with the index of services forecast to grow by 0.1%, after declining -0.2% in March.

The headline monthly number, which showed a fall of -0.1% in March, will be lucky if we show any growth at all in April, while on a three-monthly basis we can expect to see a decline from 0.8% to 0.4%.

The CBI, which represents British businesses, is today calling for the government to get a grip on the economy, warning that UK households will fall into a recession this year.

It has downgraded its GDP growth forecasts to 3.7% in 2022 (from 5.1% previously) and 1.0% in 2023 (from 3.0% previously).

It also fears household spending will shrink next year amid dented business and consumer confidence.

Director general Tony Danker said the Prime Minister and Chancellor had to take urgeng action to support growth, including supporting business investment and tackling labour shortages in industries such as aviation.

Let me be clear – we’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession. And even if we don’t, it will feel like one for too many people.

“Times are tough for businesses dealing with rising costs, and for people on lower incomes concerned about paying bills and putting food on the table.

Wider recession fears are also roiling markets, after the US inflation rate hit a new 40-year high of 8.6% on Friday.

That sent stocks reeling in Europe and on Wall Street at the end of last week, and Asia-Pacific markets have followed - with Japan’s Nikkei sliding almost 3%.

European stock markets are set for further losses today:

The agenda

  • 7am BST: UK GDP report for April
  • 7am BST: UK balance of trade for April
  • 11am BST: NIESR’s monthly GDP tracker for May
  • 1pm BST: India’s inflation rate for May
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