UK GDP Flatlines as PM Sunak Pins Election Campaign on Economy

Economic Stagnation

The flash figures revealed that the UK economy flatlined in April, in line with expectations from economists polled by Reuters. This follows a 0.4% expansion in March. Despite this monthly stagnation, the GDP was up by 0.7% over the three months to April.

Several sectors contributed to this mixed economic performance:

• Construction output: Declined by 1.4%, marking its third consecutive monthly fall.

• Production output: Decreased by 0.9%.

• Services sector: Continued to grow, expanding by 0.2%.

Lindsay James, an investment strategist at Quilter Investors, attributed the slowdown in April to persistent gloomy weather, which discouraged consumer spending. "Whilst the weather has thankfully improved of late, likely boosting May’s reading, the second quarter is off to a slow start and has a lot of catching up to do if it is to match the 0.6% growth seen in the first quarter," James noted.

Outlook for Interest Rates

The modest quarterly growth observed earlier this year had initially fueled speculation that the Bank of England might begin cutting interest rates in June. However, market expectations have since shifted, with traders now anticipating that any rate cuts will likely occur in August or September. The Bank of England is set to decide on its next monetary policy steps on June 20.

Labor data released on Tuesday showed an unexpected rise in UK unemployment to its highest level in two and a half years, while wage growth exceeded expectations at 6%. This presents a mixed picture for monetary policymakers as they consider their next moves.

Trade Figures and Political Implications

April also saw the value of UK goods imports increase by 8.2%, while the value of exports remained flat. This new economic data could become a significant talking point in the upcoming general election, with both the Conservative Party and the Labour Party focusing heavily on economic issues.

Prime Minister Rishi Sunak has highlighted the recent decline in UK inflation in his speeches, aiming to bolster his party's economic credentials. However, George Roberts, head of dealing at Ebury, noted that the latest trade figures could pose a challenge for Sunak. "The financial challenges faced by exporters since Brexit, the Covid-19 pandemic, and the Ukraine war seem to have stuck despite the government’s efforts to push for non-EU trade deals like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and more recently with Texas," Roberts said.

Labour’s economy spokeswoman Rachel Reeves responded to the data by criticizing Sunak's economic management. “Rishi Sunak claims we have turned a corner, but the economy has stalled and there is no growth,” Reeves said.

Conclusion

As the UK heads into a crucial election period, the latest economic data underscores the challenges facing the incumbent Conservative government. With GDP flatlining and key sectors struggling, the economy will undoubtedly be a central issue in the upcoming election campaign.