End to Testing Drives Output Down at Start of the Second Quarter of 2022

Main points

• Negative growth of 0.3 per cent in April increases the chances of a recession, though this was largely driven by the end of the government’s Test and Trace programme rather than weakness in private demand.
• The impact of rising energy prices, particularly on manufacturing, is likely to impede recovery in the coming months. We now forecast month-on-month growth to stagnate in May and June, leading to a decline of 0.4 per cent in the second quarter overall.
• Strong April growth in retail and hospitality suggest that some households at least have been able to use Covid-19 savings to weather the initial inflation shock. The government’s latest support package may also help avert a larger and longer-term fall in demand.

“April’s headline 0.3 per cent fall in GDP hid some strength in private services sectors: 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. 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”

Rory Macqueen
Principal Economist, NIESR

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