By Michele Maatouk
Date: Thursday 12 May 2022
(Sharecast News) - The UK economy unexpectedly contracted in March amid rising prices, figures from the Office for National Statistics showed on Thursday, fuelling fears the cost of living crisis will plunge the country into recession.
GDP shrank by 0.1% following no growth in February and 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 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."
Sterling slumped on the news and by 1100 BST was trading 0.6% lower versus the dollar at 1.2184.
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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