What’s Going On Here?Data out on Monday showed that the UK economy shrunk unexpectedly in April. What Does This Mean?Economists weren’t expecting much from the UK in April, especially since rising taxes and energy prices meant the country had the highest inflation of any G7 country. But things were even worse than predicted: the services sector – which makes up the bulk of the UK’s economy – shrunk 0.3%, as folk spent less on healthcare and Covid test and trace activity fell off a cliff. The production and construction sectors dropped by 0.6% and 0.4% too, partly because businesses were hindered by supply shortages and higher prices. That’s the first time all those sectors have simultaneously dipped since January 2021, and that pushed the UK economy to shrink 0.3% in April from the month before – way off the 0.1% growth economists expected. Why Should I Care?The bigger picture: Careful, there.
The UK economy hasn’t grown for three straight months, suggesting the country’s recovery has well and truly stalled. In fact, economists now predict the economy will shrink 0.4% this quarter, well below the Bank of England’s (BoE’s) 0.1% growth forecast. But with energy prices set to push inflation even higher later this year, economists think the central bank will be forced to keep hiking rates. Still, since the economy’s looking so weak, it’s widely expected the BoE will stay away from big hikes and stick to 0.25% when it makes its announcement later this week.
Zooming out: Up, up, and away.
Rising commodity prices have been pushing up prices of goods around the world, so much so that new research from Citi predicts consumers will pay producers $5.2 trillion more this year than they did before the pandemic. And the longer supply issues continue, the worse it could get: Citi warned of more countries hoarding supplies instead of exporting them, which would put even more pressure on prices. | 