UK economy returns to growth in April amid buoyant services sector

The UK economy bounced back in April after it was boosted by stronger spending by Britons in pubs, bars and shops.

Gross domestic product (GDP) increased by 0.2 per cent for the month after a 0.3 per cent fall in March, the Office for National Statistics (ONS) revealed. The latest figure was in line with forecasts for the month from economists. The rise was partly caused by a recovery in consumer-facing services, which grew 1 per cent for the month, as Britons spent more on drinking and eating out.

ONS director of economic statistics Darren Morgan said: "GDP bounced back after a weak March. Bars and pubs had a comparatively strong April, while car sales rebounded and education partially recovered from the effect of the previous month's strikes."

The statistics body said the overall services industry grew by 0.3 per cent for the month, as it recovered from a 0.5 per cent decline in March. Mr Morgan added: "[This was] partially offset by falls in health, which was affected by the junior doctors strikes, along with falls in computer manufacturing and the often-erratic pharmaceuticals industry. House-builders and estate agents also had a poor month."

The rise in GDP was partly caused by a recovery in consumer-facing services, which grew 1 per cent, as Britons spent more on drinking and eating out (file image). Picture: Peter Summers/Getty Images.

It comes amid a backdrop of surging interest rates, which have lifted to a 14-year-high of 4.5 per cent and are expected to keep rising. The construction sector reported a 0.6 per cent decline in output for the month.

Chancellor Jeremy Hunt said: "We are growing the economy, with the [International Monetary Fund] saying that from 2025 we will grow faster than Germany, France and Italy. But high growth needs low inflation, so we must stick relentlessly to our plan to halve the rate this year to protect family budgets."

Encouraging

Kitty Ussher, chief economist at the Institute of Directors, said: "Businesses in the consumer-facing sectors will be encouraged by today's data. However, the Bank of England may interpret it as proof that their interest rate hikes have not yet dampened demand enough to reduce inflationary pressure, particularly when combined with yesterday's strong labour market performance."

Guy Foster, chief strategist at RBC Brewin Dolphin, said: “UK GDP was in line with expectations – the official data was refreshingly boring, containing few surprises. Nevertheless, the economy still languishes below its size at the end of 2019 and, beyond the services sector, other economic activity remains weak.

"Interest rates need to keep rising, while labour markets are tight and core inflation continues to accelerate, despite the valid concerns that this will at some stage impact a fairly fragile growth picture. The chances of avoiding an accident, whereby inflationary pressures are eased without pushing the economy into a future recession, seem very slim.”

Kevin Brown, savings expert at Scottish Friendly, said the latest GDP figures indicate that “it’s increasingly likely that the UK will avoid a recession in 2023, albeit by the skin of our collective teeth”. However, he added: “Whilst wage and employment data released by the ONS yesterday showed unexpected strength in the UK labour market, the knock-on effect of the 7.2 per cent rise in basic wage growth means the spectre of an inflationary spiral still looms large. In times of uncertainty, it’s always good to try and build a cash cushion to protect yourself from any economic shocks.”