Double-digit inflation and labour unrest in transport, healthcare, and education slowed the UK economy in the year’s first three months.
The Office for National Statistics reported Friday that GDP, the broadest economic indicator, rose 0.1% in the first quarter. The growth rate equalled the fourth quarter of last year and economic predictions. The numbers come a day after the Bank of England approved a 12th straight interest rate increase to combat inflation of around 10% since July. The bank updated its economic prognosis, stating the “underlying picture is more positive” than earlier this year.
“Let’s be clear, whilst the Bank of England may believe the UK economy will now avoid the predicted inflation entirely. The country is not in good health,” said Danni Hewson, head of financial analysis at UK investment platform AJ Bell.
“Rising prices, interest rates, and strike action have created an unpalatable cocktail.” Monthly, it was worse. March output declined 0.3% from February.
Russia’s invasion of Ukraine has hurt the British economy, causing workers to strike due to rising prices. In March, UK Inflation was 10.1%, compared to 5% in the U.S. and 6.9% in eurozone countries.
The ONS reported quarterly reductions in transport, public administration, healthcare, and education output due to strikes. Service sector output climbed 0.1%, accounting for 80% of the UK GDP.
Manufacturing and other productive industries rose 0.1% after no growth in the previous quarter and five consecutive quarters of contraction.
Construction output rose 0.7% for the sixth quarter.
As last year’s significant energy and food price rises drop out of the annual calculation, inflation will likely reduce swiftly. However, some economists are worried about the steep rise in interest rates.
Higher borrowing costs for businesses and individuals reduce consumption and inflation. That also slows economic growth. Central bankers have battled to restrain price increases without stifling economies still recuperating from the coronavirus outbreak.
“There’s still no recession, but with the full drag from higher interest rates yet to be felt, it is too soon to sound the all-clear,” said Capital Economics deputy chief UK economist Ruth Gregory after the statistics were revealed.