Recession looms after UK economy contracted in March Business

Information and communication services joined the declining retail trade in March, with finance and insurance activities also somewhat weaker in the month than they were in February.

However, personal services picked up while healthcare rose 2.1% on the month, with the return of more GP appointments and A&E care boosting output.

In-person appointments add more to the economy than the phone consultations that have become the mainstay of practices during the pandemic, boosting GDP as services return to something more normal.

Without the growth in health and social work since the start of the pandemic, GDP would be one percent lower today. However, it also indicates that there may be a limit to the growth healthcare can provide in the coming months once normal service resumes. It also comes at a time when expensive Covid emergency programs, such as the test and trace and the vaccination program, which provided GDP support in the pandemic, are being scaled back.

James Smith, an economist at ING, expects the economy to contract in the second quarter as a result.

“Healthcare spending has been a key driver of GDP during the pandemic, and in fact, the overall size of the economy would be about 1% smaller if output in this sector had remained stable since the start of 2020” , did he declare.

“Add in the distortion of the additional bank holiday scheduled for June, along with the continued impact of the consumer spending squeeze, and we’re likely to see a slightly negative GDP number for the whole of the second quarter.”

Manufacturing production fell by 0.2 pc in March, with a fall of more than 5 pc in pharmaceutical products, 4.1 pc in textiles and 3.5 pc in chemicals. The construction industry managed to grow by 1.7pc over the month, with strong demand for home maintenance work, as well as new commercial properties.

In the first quarter of the year as a whole, GDP rose 0.8% as the economy recovered from the winter omicron wave, before the war in Ukraine sent a already high inflation, largely due to an increase in the cost of goods such as gasoline. .

In the three months to March, the recovery in hospitality combined with growth in information and communications, transportation and warehousing was enough to offset to hit retail to sustain growth. of the service sector.

Yael Selfin, chief economist at KPMG UK, said the economy was at growing risk of recession.

“The prospects are looking increasingly heavy. Although we do not yet expect a recession this year, weak growth means additional shocks or spillovers from other economies make this scenario increasingly likely,” she said.

“The pressure on consumers has tightened from the second quarter of this year, with the increase in energy tariffs and the rising cost of food and other basic products resulting from the conflict in Ukraine, making increase in the cost of living At the same time, the tightening of financial conditions and the rise in interest rates have led to an increase in the cost of borrowing.