UK Economy Fails to Grow in April

Morningstar

UK GDP was flat in April, according to data from the Office for National Statistics, showing a 0% month-on-month change. Along with this yesterday’s unemployment numbers and May inflation, GDP is a key data point taken into account by the Bank of England, which meets next week.

The data shows that the UK economy, having recently exited recession, is still struggling to grow, a concern for both major parties as the UK heads to the polls. The UK economy is just 0.6% higher than at April 2023, and the IMF is predicting 0.7% growth in GDP for the whole year, before rising to 1.5% in 2025.

Michael Field, European market strategist at Morningstar, says that April was a poor month for the UK, especially for the manufacturing, industrial production, and construction sectors. Poor weather was also a factor.

But the data could prompt the Bank to act on interest rates, he adds:

“Weak economic readings such as these are never a cause for cheer. However, with the Bank of England poised to decide on when to cut interest rates, data points like todays might actually prove to be a positive catalyst, removing any concern the Bank might have of a potentially heating economy, and paving the way for a sooner than expected rate cut.”

Looking Ahead to Next Week’s Rate Decision

Neil Birrell, chief investment officer at Premier Miton Investors and lead manager of the Premier Miton Diversified Fund range, also suggests that there is some argument for a rate cut to boost the ailing UK economy: “No one set of numbers will drive the Bank of England’s interest rate decision, but they will now be looking to inject some stimulus as soon as they feel it is safe to do so.”

Yesterday’s unemployment and wage data showed wages in the service sector still buoyant, a concern for the Bank of England. One June 19 the ONS also releases May inflation data, a day ahead of the Bank’s latest rate-setting decision. In April, UK inflation fell to 2.3%, close to the 2% target, but the Bank has warned that inflation could rise again before falling back.

The European Central Bank cut interest rates last week for the first time in five years, but its inflation outlook changed market expectations of the sequence of rate cuts this year. And the Federal Reserve is due to make an interest rate decision tonight, but

The full article is available here. This article was published at Morningstar Economics.