Danni Hewson, AJ Bell financial analyst, comments on the latest UK GDP figures:
“The cost of doing business is limiting the UK’s ability to carry out that business. All sectors struggled with rising prices in April as petrol and energy costs in particular cast a pall on proceedings and following hot on the heels of March’s dip, these latest numbers set a worrying tone. Confidence is shaky, inflation is taking a big bite out of consumers budgets and businesses are caught between the devil and the deep blue sea. Hike their prices and lose sales or offer discounts and watch margins wither.
“With just days to go before the Bank of England makes its next rate decision there will be plenty of debate about how best to curb searing levels of inflation whilst still providing a “soft landing”. Is recession an inevitability at this point? With the OECD’s warning still ringing in the ears there’s plenty to be concerned about. Russia’s invasion of Ukraine has seriously set back Covid recovery plans around the world but a backdrop of reduced trade, rising taxes and a price cap creating artificial energy peaks, the UK has particular problems.
“But strip away the impact of the dwindling test and trace programme and things look a little brighter. “Living with Covid” has changed all of our habits; we no longer need tests to travel or simply go about our daily lives and most people who want a vaccine are now fully boosted. Life means socialising and people’s vanity is sending them to hairdressers and barbers in their droves, just one of the consumer-facing services seeing an uptick in demand. And whilst prices at the pump might limit the miles many people do, they’re still back out on the roads and those cars need maintaining or replacing, even if we are watching out pennies.
“But some issues are here to stay; activity in the rental sector has fallen away as landlords head for the exit, perhaps worried by those rising interest rates, perhaps overwhelmed by changing rules and supply issues aren’t going away, manufacturers of computers and electronic equipment still struggling to get what they need.
“The UK economy is still holding on to its post pandemic gains, up 0.9% on where it had been before lockdowns were a thing. But after roaring back to life the economic engine has overheated, stalled on the side of the road, waiting for jumpstart or paused until the thermostat eases slowly out of the red.”