Unexpected March Downturn Brings Recession Closer

Main points

• GDP grew by 0.8 per cent in the first quarter: less than the 1.0 per cent we forecast a month ago, predominantly due to weaker services growth. Supply-chain problems in the motor industry contributed significantly but there was weak growth in much of the retail sector.
• With consumer confidence indicators continuing to weaken we expect growth to be largely flat in April and close to flatlining in the second quarter overall.
• The first estimate of GDP expenditure components for the first quarter was for a decline in business investment of 0.5 per cent. With uncertainty from the war in Ukraine likely to weigh on investment further, we may see yet further delays to recovery from the Covid shock, reducing the capital stock and supply capacity yet further.

“March’s deterioration in consumer confidence translated into a sharp fall in retail and wholesale, which was exacerbated by continuing supply-chain problems in the motor industry. Offsetting this, the continuing normalisation of GP and hospital activities cancelled out falling Covid-related activity to mean that the health sector returned to month-on-month growth. Falling business investment in the first estimate for the first quarter is a concern: with the government’s tax ‘super-deduction’ expiring in under a year we still see little sign of a recovery from the Covid shock.”

Rory Macqueen
Principal Economist, NIESR

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