The UK economy contracted by 0.3% in April, representing the biggest drop in over a year, according to the latest data published by the Office for National Statistics. It follows a 0.2% rise in March and predictions of a 0.1% contraction.
Services and production output fell by 0.4% and 0.6% respectively month-on-month, although, more positively, construction managed to grow by 0.9%.
Although the economy grew by 0.7% in the three months to April compared with the previous quarter, the April figures have set the second quarter up on the backfoot.
Nicholas Hyett, investment manager at Wealth Club, said the UK economy is facing a “cocktail of headwinds” to growth and “slowed more than expected in April as a result”.
Knocks to economic growth include new barriers to trade with the US and changes to employment costs due to increased national insurance contributions.
Quilter investment strategist Lindsay James added: “Following a positive reading in March, ‘Awful April’ has struck again.”
Consumer demand previously held up better than expected, with businesses likely feeling confident to pass through ongoing price pressures to their customers but consumers may have now grown more cautious, contributing to the April downturn, he said.
“Investors have already been highly cynical about the government’s spending plans and its fiscal rules and these figures will likely spur further uncertainty around affordability,” James noted.
“With the economy now weakening, we can expect to see concerns around further tax rises increase as we near the Autumn Budget – which is likely to weigh on growth even more.”
Felix Feather, economist at Aberdeen, suggested that April’s weak performance likely represents “some payback for the past strength” and noted the central bank is likely to remain unchanged regardless of the sudden drop last month.
“Despite the headwinds facing the economy, the Bank of England is likely to keep policy on hold next week in line with its ‘gradual and careful’ approach to easing,” he said.