UK economy limps along as high inflation hits spending

UK economy limps along as high inflation hits spending

London (CNN). The United Kingdom economy struggled in the first three months of this year, as consumers cut back on spending on services. Strike action also took a toll.

Data from the Office for National Statistics showed that the country's Gross Domestic Product (GDP), compared to the previous quarter, increased by 0.1%.

Darren Morgan, Director of Economic Statistics at the ONS, said that output fell by 0.3% compared to February due to "widespread declines" in the demand for services.

Morgan said that strikes by workers in the public sector had also affected activity.

The UK's March figures show that the economy is still struggling to grow.

She added that "sky-high inflation and negative real wage growth are impacting the consumer and, in turn, the services sector, which is a major growth engine in the UK's economy."

In its fight against double-digit inflation, the Bank of England increased interest rates Thursday for a 12th time in a row. The Bank of England also upgraded its forecasts for the UK's economy on Thursday. It now expects that it will avoid a recession in this year largely due to a sharp decline in energy prices.

The central bank has revised its forecasts for the UK economy, predicting growth of 0.75% by 2024 and 0.25 % this year. This is a more optimistic assessment than it was in February when they predicted contractions of 0.25% and 0.5% respectively. Governor Andrew Bailey stated that it was not a "strong prediction," but rather less weak than previous bank projections.

In a note published on Friday, Samuel Tombs said that the UK is the only G7 nation in which the GDP measure has not yet recovered to the pre-Covid level.

Inflation still high

The UK's consumer price inflation remains stubbornly high. It was above 10% for the year ending March. ONS stated that rising prices had affected real household spending, which remained flat in the first three months of the year, as opposed to an increase of 0.2% for the fourth quarter of 2022.

Tom Stevenson is the personal investing director of Fidelity. He said that the slowdown in the services sector of the economy was due to higher borrowing costs.

"With inflation in double-digits, it's depressingly similar to a rerun of the 1970s."