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UK residents scared as the impacts of inflation bites

UK inflation

Image Source: CU Insight

Fears about the UK economy’s prospects have intensified since it contracted again in April, with firms feeling the effects of rising costs.

According to the Office for National Statistics, the economy dropped by 0.3 percent in April after contracting by 0.1 percent in March.
The April figure was lower than predicted, marking the first time the economy has shrunk for two months since Covid hit.

Some analysts have warned that the UK could enter a recession.

Rising prices have impacted both individuals and businesses, with prices increasing at their quickest rate in 40 years due to record-high gasoline and energy expenses.

The cost of filling up a typical family car with petrol just surpassed £100, and there are hints that consumers are cutting back on their spending as prices climb.

The Bank of England has warned that the UK is experiencing a “sharp economic downturn,” with inflation – the rate at which prices grow – expected to reach more than 10% by the end of the year.

April marked the first time since January 2021 that all three major economic sectors – services, manufacturing, and output – had decreased.

The biggest driver of April’s contraction, according to the ONS, was the services sector, which was hit by the closure of the NHS’s Covid Test and Trace program. However, it also stated that certain businesses were still suffering from the effects of pricing rises and supply chain shortages.

JJ Foodservice, a wholesale food and catering firm, provides schools and private customers with food goods and ingredients from restaurants and takeout.

Energy prices and talent shortages, according to Kaan Hendekli, the firm’s Head of Operations, are harming firms, but he says the price of gasoline is having the most impact since “it affects everything.”

Melanie Baker, a senior economist at Royal London Asset Management, said the UK was “at increased danger of a technical recession,” which is defined as a contraction in the economy for two consecutive three-month periods.

The CBI’s director-general, Tony Danker, stated that the business organization “expects the economy to be pretty much static.”

However, due to the government’s newly announced support package, which includes a £400 energy bill discount for all UK households, according to Samuel Tombs of Pantheon Macroeconomics, a recession “remains unlikely.”

In response to the latest GDP figures, Chancellor Rishi Sunak said the UK was not immune to global economic shocks but that the government was “fully focused on growing the economy in the longer term to address the cost of living while supporting families and businesses with the immediate pressures they’re facing.”

Rachel Reeves, Labour’s shadow chancellor, said the results were “very concerning” and will “add to mounting disquiet about the Conservatives’ terrible growth and declining living standards.”

The drop in GDP (Gross Domestic Product) in April was worse than expected, although it is unsurprising given the circumstances.

This month saw a record 54 percent increase in home energy bills, as well as continuous pressure at the pump, National Insurance hikes, and the persistent uncertainty surrounding Russia’s invasion of Ukraine.

According to government sources, the economy would have nearly increased if it hadn’t been for the one-time consequence of the shutdown of pandemic test and trace services. However, using that logic, several past GDP estimates were also inflated.

There has been no increase for three months in a row. The UK economy has only increased in January this year. While May might buck the trend, the economy is likely to decline this quarter.

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