The UK economy contracted by 0.1% in April, reversing part of the strong growth recorded earlier in the year as rising energy costs and geopolitical tensions began to weigh on economic activity, according to official data.
Figures released by the Office for National Statistics showed that gross domestic product declined by 0.1% during the month, following a 0.3% increase in March.
The contraction was in line with economists’ expectations and has added to concerns that the economy could shrink during the second quarter of the year.
The downturn comes as higher energy prices linked to the conflict involving Iran have started to affect economic conditions.
The closure of the Strait of Hormuz, a key global shipping route, has contributed to increased costs and growing uncertainty for businesses and consumers.
According to the ONS, the April contraction was primarily driven by weakness in the services sector, which recorded a 0.2% decline during the month.
The agency said weaker activity in public administration, as well as the arts, entertainment, and recreation sector, contributed significantly to the fall in services output.
Construction activity provided some support to the economy, rising by 0.1% during the month.
However, the ONS noted that the increase was entirely due to repair and maintenance work.
New construction work fell by 0.3%, despite the government’s commitment to accelerate building activity and its pledge to deliver 1.5 million new homes.
Longer-term growth remains positive
Despite the monthly decline, broader economic performance remained positive.
Over the three months to April, GDP expanded by 0.7%, according to the ONS.
This longer-term measure is generally considered less volatile than monthly data and suggests that economic activity remained stronger than a single month’s figure would indicate.
However, economists have increasingly lowered their growth forecasts for major economies, including the UK, amid concerns that higher oil and energy prices will push inflation higher and dampen economic activity.
Economists warn of further slowdown
Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, warned that economic pressures could intensify in the coming months.
“We expect this slowdown to intensify as higher energy costs feed through the economy, with the impact likely to be felt most acutely in the third quarter as the energy price cap rises,” he said, as cited by The Guardian.
Market reaction
Market participants are now awaiting upcoming inflation and labour market data, which are expected to provide a clearer indication of how the conflict has affected the UK economy.
Meanwhile, the British pound attracted modest buying interest following the GDP release.
Sterling recovered most of its earlier losses against the US dollar, with GBP/USD rebounding towards 1.3410 despite a weaker-than-expected economic backdrop.
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