UK GDP unexpectedly shrinks in April

The UK economy unexpectedly contracted in April, at the sharpest pace in more than a year, amid higher prices and supply chain issues.

According to data released on Monday by the Office for National Statistics, the economy shrank by 0.3% in April following a 0.1% decline in March, and versus consensus expectations of 0.1% growth. For the first time since January 2021, contractions were seen in services, production and construction.

The ONS pinned some of the blame for the contraction in GDP on the scaling back of the government’s Covid Test and Trace and jab programmes.

ONS director of economic statistics, Darren Morgan, said: "A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.

"Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.

"These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March."

Paul Dales, chief UK economist at Capital Economics, said the 0.3% contraction "isn’t as weak as it looks, but nonetheless increases the chances that the Bank of England opts for a 25 basis points rise in interest rates on Thursday rather than the 50bps hike we are forecasting".

He said GDP would need to rise by 0.4% or 0.5% month-on-month in both May and June to prevent it from contracting in the second quarter as a whole.

"That said, without the joint wind down of the Covid-19 NHS Test & Trace and vaccination programmes GDP would have risen," he noted. "Those programmes subtracted 0.5 ppts from GDP growth and without them (and after rounding) GDP would have increased by 0.1% m/m. That’s hardly strong, but it suggests the underlying momentum isn’t as weak as the headline figure implies."