Chances of a UK recession increased with fall in economic output in April and the economy is likely to shrink 0.4 percent in the second quarter amid a similar size fall in the services output, the National Institute of Economic and Social Research said Monday.
Official data released earlier on Monday showed that gross domestic product fell 0.3 percent in the month of April despite strength in private services sectors.
In May, NIESR forecast UK growth at 3.5 percent this year.
“Strong growth in retail, hospitality and other services suggests that some households may have been able to smooth their consumption in the face of the inflation shock,” NIESR Principal Economist Rory Macqueen said.
“Manufacturing appears to be suffering as a result of the impact of high petrol and energy, with declines in 8 out of 13 sub-sectors, but April’s overall decline was principally driven by the winding-down of the Test and Trace programme, which had made significant positive contributions to GDP over most of the Covid-19 period”
The think tank forecast month-on-month growth to stagnate in May and June. For the whole of the second quarter, the institute predicted a 0.9 percent fall in production output led by a slump in manufacturing. Construction was forecast to grow 0.7 percent.
The impact of rising energy prices, particularly on manufacturing, is likely to impede recovery in the coming months, the NIESR said.
The institute said strong April growth in retail and hospitality suggested that some households at least were able to use Covid-19 savings to weather the initial inflation shock. Further, the government’s latest support package may also help avert a larger and longer-term fall in demand, the NIESR added.
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