According to official figures released on Friday, the British economy expanded by 0.1 percent in the first quarter despite contracting in March. High inflation and strikes continue to have a negative impact on output.
The economy grew by 0.5 percent in January after narrowly avoiding a recession the previous year, before levelling out in February and declining by 0.3 percent in March, according to a statement from the Office for National Statistics.
Darren Morgan, director of economic statistics for the ONS, stated that the widespread declines in the services sector were the cause of the March decline.
“Car sales were low by historical standards despite the introduction of new number plates, continuing the trend seen since the start of the pandemic,” he continued. “Warehousing, distribution, and retail also had a poor month.”
The information was released one day after the Bank of England predicted that, despite the nation’s annual inflation rate remaining above 10%, the UK economy will avoid recession this year.
The BoE increased its benchmark interest rate by another quarter point to 4.5 percent on Thursday as consumer prices continued to grow quickly.
The rate was raised for the 12th time in a row by the central bank, making it the highest level since the 2008 global financial crisis.
High inflation is devaluing workers’ earnings, leading to widespread strikes across Britain, the most recent of which was Friday’s disruption of the rail system.
According to Yael Selfin, chief economist at KPMG UK, “a weaker economy in March underscores how fragile it is despite a decline in wholesale energy prices, stronger supply chain conditions, and customer trust that has recovered from multi-year lows.”
“While recession is probably no longer in the cards, vulnerabilities resulting from higher borrowing costs and tighter credit are likely to dampen business and household activity this year,” she continued.
The new BoE increase is expected to make the squeeze on living standards worse because retail banks will pass the increase along to borrowers in the form of increased loan repayments, including mortgages.
Those who can afford to save will gain from higher fixed yields on assets at the same time.
The UK’s 10.1 percent annual inflation rate in March was the highest among the Group of Seven richest countries.
The BoE and British Prime Minister Rishi Sunak blame the high level in part on salary increases and have advised employers to exercise caution.
Voters last week rejected Sunak’s Conservative government in municipal elections due to a cost-of-living issue, despite government attempts to partially subsidize energy costs.