Having grown by 0.4% in January, the UK economy stagnated in February as widespread strike action offset growth in the construction sector. The IMF upgraded its forecast for UK economic growth this year, although growth is predicted to remain negative and the UK is expected to be the weakest performer amongst the IMF’s advanced economies.
- Food price inflation rose to 19.2% YoY in March
- S&P Global upgraded its outlook for the UK to “stable”
- Consumer confidence showed signs of improvement
UK economy flatlines: having grown by 0.4% in January, the UK economy stagnated in February as widespread strike action offset growth in the construction sector. The International Monetary Fund (IMF) upgraded its forecast for UK economic growth this year, although growth is predicted to remain negative and the UK is expected to be the weakest performer amongst the IMF’s advanced economies. The UK is now forecast to contract by 0.3% this year, in contrast to the IMF’s previous forecast of -0.6%. The FTSE 100 Index rose by 3.1% during April, while the FTSE 250 Index climbed by 2.6%.
“Expectations of another increase in interest rates provided fresh support for the pound”
Inflation remains in double digits: the UK’s rate of consumer price inflation fell from 10.4% year on year in February to 10.1% in March, but annualised inflation for food and non-alcoholic drinks rose from 18.2% in February to 19.2% in March, driven by higher prices for bread and cereals. According to the British Retail Consortium (BRC) , food sales rose by 8.5% by value over the first quarter, compared with the 12-month average growth rate of 5.8%, but volumes fell as consumers struggled with inflationary pressures. Looking ahead, however, Monetary Policy Committee (MPC) member Silvana Tenreyo warned that inflation could drop “well below” the Bank of England’s 2% target next year because the wider economy has yet to feel the full impact of recent rate increases. Expectations of another increase in interest rates provided fresh support for the pound , which rose as high as US$1.26 during the month.
Is uncertainty filtering through to the labour market? Vacancies fell between December and February and the rate of unemployment edged up to 3.8%. Average pay (excluding bonuses) rose by 6.6% during the period; however, in real terms, wages fell by 2.9% – one of the largest declines in wage growth since records began in 2001, according to the Office for National Statistics (ONS). Nevertheless, despite the stagnating economy and persistently high inflationary pressures, GfK reported that consumer confidence had picked up in the UK during April.
An improved outlook? During the month, credit ratings agency S&P Global retained its “AA” sovereign credit rating for the UK and revised up its outlook from “negative” to “stable”, citing the UK Government’s decision to “abandon most of the unfunded budgetary measures” proposed in September 2022’s disastrous mini-Budget.
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