Economy Shrinks As War And Inflation Risk Recession

The UK economy shrank in March, as soaring living costs and the war in Ukraine hindered recovery from the pandemic.

- Chiara Giordano, Ben Chapman

Experts warned that a plunge in household incomes meant trouble ahead for the economy and that the risk of a recession а was growing.

Official figures show the economy grew by 0.8 per cent between January and March, down from growth of 1.3 per cent in the previous three months. However, GDP fell by 0.1 per cent in March, leaving it just 0.7 per cent above pre-pandemic levels, the Office for National Statistics (ONS) said.

Trade data released yesterday showed exports fell 3 per cent in real terms between March and February and remain 14.6 per cent below average 2018 levels - the last year before major upheavals resulting from Brexit. The figures will act as another economic warning sign for chancellor Rishi Sunak after separate data showed retail sales had slowed and consumer confidence plunged in April.

Real disposable incomes are forecast to fall by £1,200 per household this year in the biggest fall in living standards since comparable records began in 1956. Despite the dire outlook, the chancellor has so far resisted calls to provide further financial support for people struggling to cover the cost of rising bills and higher prices for essential goods including food.

Darren Morgan, director of economic statistics at the ONS, said growth in the latest three months was the lowest for a year. He added: “Our latest monthly estimates show GDP (gross domestic product) fell a little in March, with drops in both services and in production."

Economic growth in the first quarter of the year was driven by hospitality, transport and travel agencies as consumers returned to pre-pandemic shopping habits. Construction also saw a strong month, thanks partly to repair work after storms in February.