Worry grows as UK economy shrinks again

Employers' group wants 'vital actions' to avoid an inflation-fueled recession

The United Kingdom's economy unexpectedly shrank-by 0.3 percent-during April, after contracting by 0.1 percent during March, according to the latest figures from the Office for National Statistics, or ONS.

The country's finance minister, Chancellor of the Exchequer Rishi Sunak, played down the second straight month of contraction by saying the UK had been hit by global problems-including the novel coronavirus pandemic, the Russia-Ukraine conflict and resulting high cost of fuel and energy, and supply-chain shortages-that conspired to push prices up at the fastest rate for 30 years.

"Countries around the world are seeing slowing growth, and the UK is not immune from these challenges," the BBC quoted him as saying. "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."

But Rachel Reeves, the UK's shadow chancellor of the exchequer, said: "These figures are extremely worrying and will add to the concern families are still feeling about their own finances and the long-term health of our economy."

Sky News said the Confederation of British Industry, which is the UK's biggest employers' group, said the contraction in the economy demands "vital actions" from the government so an inflation-driven recession is avoided.

The ONS said the economic downturn during April was the first time all of the major parts of the economy-the service sector, manufacturing, and other forms of production-had shrunk at the same time since January 2021.

It was the first time the economy had shrunk for two consecutive months since the start of the pandemic.

However, talk of a recession remains premature because an economy is only deemed to be in recession after two consecutive quarters of economic contraction. The three-month quarter ending April 30 actually saw growth, albeit of a paltry 0.2 percent.

With recession, therefore, still lurking at least six months away, Paul Dales, chief economist at the consultancy company Capital Economics, told The Guardian newspaper: " (Monthly GDP) wasn't as weak as it looks, but it nonetheless increases the chances that the economy is slipping into recession."

The poor performance during April surprised analysts, who had expected growth of 0.1 percent.

The ONS said the sharp and unexpected economic contraction during April was impacted significantly by the end of the National Health Service's test and trace program.

Darren Morgan, the ONS's director of economic statistics, said "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."

The ONS said people also balked during April at paying higher prices for products, and reeled in their spending on travel as well; all factors that dented the UK's gross domestic product, or GDP.

Additionally, shortages of key raw materials weighed on economic activity, with industrial production down 0.6 percent, construction shrinking by 0.4 percent, and even the 2.6 percent growth in consumer-facing services disappointing in comparison to pre-pandemic levels.