Things are going to get worse before they get better, suggests Paul Craig, portfolio manager at Quilter Investors, with UK GDP figures just part of the picture.
GDP for April shows the UK economy continues to splutter, missing expectations and showing negative growth of 0.3% for the month.
While a recession is still a while away, it is looming on the horizon and its effects will begin to be felt in the UK well before we are officially in one.
Contraction in services was the main driver of the fall in monthly GDP growth, but manufacturing and production continues to struggle with rising prices and supply chain shortages. With this data reflecting April’s economy, the real picture today is likely to be event starker.
Despite weakening economic growth, the Bank of England this week is expected to raise rates further as it seeks to get inflation under control and looks to be seen to be doing something.
However, as the BoE has pointed out in the past, much of this is inflation is out of its control and as such it is going to be an incredibly difficult task to guide the economy through this volatile and uncertain period.
This could ultimately get even more difficult with Brexit tensions rising to the fore once again, while the strong dollar is making any attempt to revive sterling a tough one.
With sterling sitting where it is just now things are unfortunately going to get worse before they get better. Just as with the pandemic response two years ago, fiscal and monetary policy is going to have to work hand in hand. This could mean we see the BoE reversing course later on this year as the true extent of the economic damage reveals itself.
