Yorkshire Times
Weekend Edition
7:53 AM 12th May 2022

GDP: Business Leaders Will Be Keeping Very Close To Customers In The Months Ahead

ONS data that shows monthly GDP falling by 0.1% in March 2022.

image: ram0nm on Pixabay
image: ram0nm on Pixabay
Kitty Ussher, Chief Economist at the Institute of Directors, said:

“It is perhaps unsurprising that slower retail activity caused the economy to contract very slightly in March, given the huge shock to economic confidence stemming from Russia’s invasion of Ukraine and household fears about forthcoming energy and national insurance rises at the same time as a surge in Covid-19 cases that kept many people at home. In addition, the economy was also affected by the wind-down of the NHS Test and Trace service and slowing vaccination activity.

“Business leaders, particularly in the consumer-facing sector, will be keeping very close to their customers in the months ahead to understand the extent to which cost of living concerns are affecting spending patterns in the longer term.”

Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:
“Markedly slower growth confirms an alarming loss of momentum for the UK economy in the first quarter, from a strong January outturn to a decline in output in March as surging inflation increasingly weighed on activity.

“The services sector was a key driver of GDP growth in the quarter, as the release of pent-up customer demand after Plan B restrictions expired and declining concerns over Omicron, boosted activity in hospitality and tourism. This was partly offset by health sector output as NHS Test and Trace and COVID vaccination programmes reduced activity.

“The decline in business investment is further confirmation that it remains a weak point for the UK economy, limiting innovation and productivity, and stifling the UK’s growth prospects.

“The first quarter slowdown is likely to be followed by a mild contraction in economic output in the second quarter as surging inflation, soaring energy bills and higher taxes suffocate economic output by suppressing consumer spending and business investment.

“Declining health sector output following the scrapping of free Covid testing in April and the extra bank holiday in June are also likely to drag on second quarter UK GDP.

“Against this backdrop, the Bank of England’s recent decision to raise interest rates continues to look like a misstep.

“An emergency budget is urgently needed to give firms the breathing space they need to raise productivity and strengthen the economy, including reversing the recently introduced National Insurance increase until at least the next financial year.”

Head of Trade Policy at the BCC William Bain, said:

“March 2022 saw a modest but welcome rise in UK exports, led by an increase in sales of fuel. But the overall picture remains patchy compared with 3 or 4 years ago.

“Any trade war with the EU could threaten this nascent recovery, particularly in transport and automotive exports to Europe.

“Most of the UK’s largest trading partners have seen larger export growth since the depths of the pandemic and much work is still required for the UK to catch up.”

UK goods exports to the EU rose by £0.3bn (1.7%) in March 2022 driven by increases in fuel exports, although machinery and material manufactured goods exports both fell.

Exports to the rest of the world rose by £0.4bn (2.6%) again led by higher fuels sales. Goods imports data continued a far sharper recovery in March with a 9.9% rise in imports from the rest of the world and an 8.6% increase in those from the EU.

However, the trade deficit in goods and services for Q1 2022 reached its highest levels since modern records began in 1997 at £25bn (£23.6bn ex-inflation).

Taking Q1 2022, as a whole, compared with Q4 2022, presents a picture where exports to the EU continued to fall, by 0.8%, whereas exports to the rest of the world rose by 0.2%.

Compared with 3 years ago, exports to the EU and the rest of the world are both lower now. Only goods imports from the rest of the world have increased over that period.

Although compared with 2018 there has been a modest rise in goods exports of £0.8bn (£2.8bn)

Rain Newton-Smith, CBI Chief Economist, said:

“The economy barely kept its head above the water during a volatile start to the year, but times look set to get that bit tougher.

“Cost pressures and rising prices have tightened their grip, with both businesses and households feeling the pinch. The end result is a weaker economic outlook.

“It’s clear that the most vulnerable households and energy-intensive businesses may need further support, so the government should keep this under review.

“But the only way to build a resilient economy, one that can withstand price shocks, is a relentless focus on growing productivity and potential output. Business is the solution to both, so should be adequately supported to invest and grow.”