Why did the economy stall in April and will it affect the election?

12 June 2024, 15:54

Commuters on London's Millennium Bridge shelter from the rain under umbrellas.
Summer weather August 5th 2019. Picture: PA

The PA news agency looks at what Wednesday’s stuttering growth figures mean, both for the General Election and the wider economy.

The UK economy failed to grow in April, official figures showed, as heavy rainfall put a dampener on growth.

It is the last official health check on the economy before the General Election next month, and it will have consequences for the campaign.

But what do the figures actually tell us, and what impact will they have? The PA news agency explains.

– What happened?

Gross domestic product (GDP) remained flat in April, after an unusually rainy month hampered spending, the Office for National Statistics (ONS) said on Wednesday.

GDP is a measure of all the economic activity of companies, governments and people in the country.

The figures represent a slowdown, after the first three months of the year showed the country bouncing back from a small recession in late 2023.

Even compared with March, when GDP grew 0.4%, April’s flatlining figures look sluggish, at best.

UK monthly economic growth (GDP)
(PA Graphics)

– Why did this happen?

Blaming it on the weather might seem like a bad excuse – but in this case it’s valid.

April brought 55% more rainfall than normal, which stopped people getting outside and spending money.

In fact, economists had already predicted flat GDP growth, based on how the wet conditions hit retailers.

Couples walking in rainy shopping street in Buchan Street central Glasgow
Rainy weather in April affected the high street (Alamy/PA)

Retail sales fell 2% in April, per data released three weeks ago.

According to James Sproule, an economist at Handelsbanken, that’s “already telling us that people were staying home”.

Construction, another industry which is traditionally affected by bad weather, also registered a fall in activity for the month, showing just how much the rain can affect things.

– What does it mean for the election?

The economy is a key battleground in the run-up to the General Election on July 4.

Rishi Sunak has repeatedly claimed it is on the up in the first weeks of the election campaign.

So far, that argument has held firm, with inflation coming down and GDP improving in January to March – until now.

April’s stalling growth throws a spanner in the works, giving Labour a fresh attack line on the Conservatives.

Labour’s shadow chancellor Rachel Reeves said: “Rishi Sunak claims we have turned a corner, but the economy has stalled and there is no growth.”

Expect more of that between now and polling day.

UK monthly economic growth (GDP)
(PA Graphics)

– Has the economy actually stalled?

It has for the month of April – but it doesn’t tell us the whole picture.

Monthly figures like this can be volatile, precisely because of factors such as bad weather.

Luke Bartholomew, of the asset management firm Abrdn, said it is better to “look at the broader trend across several months”.

And on that measure, real GDP is estimated to have grown by 0.7% in the three months to April, compared with the three months to January.

“The picture of a broad-based recovery from last year’s minor recession remains intact,” said Rob Wood, chief UK economist at Pantheon Macroeconomics.

– What about the Bank of England?

All eyes now turn to the Bank, which must decide whether to cut the UK’s base interest rate next week.

Rates are at a 15-year high of 5.25%, designed to curb inflation.

Policymakers at the Bank are looking for signs inflation will not rise again before cutting the rate.

Today’s GDP figures “further complicate” the decision next week and at the next policy meeting in August, added Mr Wood, because three-month growth is still healthy.

That means signs of inflation staying down – such as a cooling jobs market – might take longer to filter through.

He said: “Rate setters will keep rates on hold in June, but now a cut in August looks a little less likely.”

– So what next for the economy?

It looks as if things will improve again over the summer months, despite the drop-off in April, experts say.

Peter Arnold, chief UK economist at consultants EY, added: “Looking through this volatility, we expect GDP to grow at a decent pace in Q2.

“The drag on some sectors from an early Easter should unwind in May.”

Longer term, an interest rate cut could get people spending again, added Mr Sproule.

“When we see the interest cuts coming through, people are getting more confidence about moving,” he said.

“And when they start to move, we all often see lots of consumer extension as along with that, people buy the kitchens, they buy the white goods, they buy furniture that goes in their homes.

“All of this obviously has a positive impact on consumer spending.”

By Press Association