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GDP falls as ‘Awful April’ bites the economy
UK GDP fell 0.3% in April as rising costs and global tensions hit growth, raising concerns for households already squeezed by inflation, tax hikes, and a softening job market
The UK economy showed 0.3% contraction in April on the back of global tariff wars, National Insurance and minimum wage hikes.
GDP fell 0.3% in April according to the Office for National Statistics (ONS).
The biggest detractor to economic growth was a decline in production, which fell 0.6%, while services were down 0.4%.
One bright spot was construction, which saw a 0.9% increase.
Liz McKeown, director of economic statistics and the ONS commented: “The economy contracted in April, with services and manufacturing both falling. However, over the last three months as a whole, GDP still grew, with signs that some activity may have been brought forward from April to earlier in the year.
“Both legal and real estate firms fared badly in April, following a sharp increase in house sales in March when buyers rushed to complete purchases ahead of changes to stamp duty. Car manufacturing also performed poorly after growing in the first quarter of the year.
“In contrast April was a strong month for construction, research and development and retail, with increases in these only partially offsetting falls elsewhere.”
What does this mean for my finances?
The fall, while only short term, reflects increasing struggles in the economy as a wave of policies and global events hamper business confidence and planning.
Tax increase alongside higher staffing costs driven by minimum wage increase have impacted on economic performance.
While this is bad news in the round, it could presage more interest rate cuts by the Bank of England as it looks to help support the economy in a tough spot.
Alice Haine, personal finance analyst at online investment platform Bestinvest by Evelyn Partners, says for households “a contracting economy will be concerning.”
She add: “Lacklustre economic growth can have dire consequences for people’s finances if earnings stagnate and redundancies ramp up as companies focus on reducing costs rather than investing in expansion and new hires.
“That trend is already evident in the latest jobs data with unemployment on the rise, vacancies continuing to fall and private sector wage growth easing back.
“Pair a softening labour market and slowing pay growth with an uptick in inflation in April and a creeping tax burden and household finances may start to feel the squeeze once again.
“There are some glimmers of hope, however. Borrowing costs have eased from their peak thanks to four interest rate cuts since last August and energy costs are set to drop from July 1 though they will remain 10% higher than the summer of 2024.
“These factors will relieve some of the pain for consumers but with inflationary pressures still lingering, the Bank of England is expected to keep the headline interest rate on hold at 4.25% at its rate-setting meeting next week.”
Haine has some guidance for anyone concerned by how the situation could affect their financial security.
“Many household budgets are still grappling with the horrible hangover left by the cost-of-living crisis,” she says, “which is why getting a grip on personal finances as disposable incomes get hit by elevated prices once again and the longstanding freeze to personal tax thresholds is imperative.
“Whether it’s tackling troublesome debts, setting aside some financial reserves or polishing up a CV, consumers would be wise to get their financial affairs in order to protect against any sudden shocks, such as job loss.”
Photo credits: Pexels
