GDP growth hits zero – industry reaction

Latest economic ONS data has shown that growth was flat, with GDP unchanged between March and April. GDP showed no month-on-month growth following a 0.4 per cent rise in March

The data reflects modest growth in April, offset by weakness in both Production and Construction. Services output rose 0.2% month-on-month whilst Construction output fell 1.4 per cent month-on-month. Production meanwhile  fell 0.9 per cent month-on-month.

Construction output was found to have declined by 1.4 per cent and production was down by 0.9 per cent. The services sector, which accounts for almost 80 per cent of UK output, grew by 0.2 per cent.

The data comes after the UK economy recorded its fastest growth in two years from January to March, exiting the recession it fell into in the second half of last year.

Meanwhile, wages grew at an annual rate of 6 per cent in the three months to April. These figures are likely to delay the prospect of the UK’s first interest rate cut until after the summer (The Times).

Commenting on the data, Martin McTague, National Chair of the Federation of Small Businesses (FSB) said “Today’s flat growth in GDP shows the economy is not yet delivering the conditions that small businesses need to flourish. Coming off the back of solid growth in the first quarter, it is especially disappointing.

“With the election just weeks away, no political party has yet set out a compelling vision for how it would achieve a steady increase of two to three per cent growth per year. To ensure that GDP climbs – and stays – at healthy levels, the next Government must prioritise this. It’s the only way we can rebuild the number of small businesses in the UK from 5.5 million to the pre-pandemic level of six million.

“Construction output fell for the third month in a row, underlining the need for a new Small Housebuilder Strategy, to ensure sufficient capacity to achieve ambitious housebuilding targets.

“Our latest Small Business Index shows that while small firms’ confidence score in the first quarter climbed to positive territory for the first time in two years, the domestic economy was still seen as the top barrier to growth, and today’s GDP result could contribute to a decline in the findings for the second quarter.

“Now that the National Living Wage (NLW) increase has kicked in, employment costs are a growing pressure. To help offset that, our election manifesto calls for the Employment Allowance to be raised to £6,500 and automatically go up each year with the NLW.

“Whoever takes office on July 5 should also see through a Small Business Act, establishing legislation to bolster small businesses on crucial issues. This does not require any extra spending but will bring a wealth of benefits to the economy. The Act would enshrine measures to clamp down on big businesses with poor payment practices, improve access to finance, and put in place a 33 per cent SME statutory public procurement target. Other measures could include reforming business rates and increasing the number of start-up loans.

“Small firms are the key to economic recovery – after all, they’re the ones who drive innovation and create jobs. Supporting them is a sure-fire way to strengthen our economy and ensure lasting growth. The next Government has its work cut out for it, but with the right focus, it will be able to make a substantial impact on the economy.”

Ben Jones, Lead Economist, CBI, said “After one of the wettest Aprils since records began it’s no surprise that rain dampened consumer spending, with many households also feeling the pinch from higher prices and bills.

“But consumers and firms alike are going to start to feel the benefit of lower inflation, which in turn should boost confidence and support spending as we head into a summer packed with major entertainment and sports events, like the Euros.

“Lower inflation, rising real incomes and low unemployment mean household spending is set to drive a steady economic recovery in the year ahead, which should broaden out to stronger business investment next year.

“However, to ensure longer-term, sustainable growth we must tackle our ongoing productivity problem. Top of the in-tray for the next government should be a cutting-edge trade and investment strategy, a Net Zero Investment Plan and more support for firms to invest in automation and AI.

“At the same time, a focus on building momentum behind the ‘big three’ enablers of tax, planning and skills policies within the first 100 days can give firms a clear flightpath for growth.”

James Smith, Research Director at the Resolution Foundation, said “After a strong start to the year, falling retail sales and contracting manufacturing output have brought growth to a halt in April. The latest data offers a snapshot of Britain’s wider growth challenge, and should remind politicians that ending stagnation should be the central task of whoever wins the next election.”