The economy shrank by a bigger than expected 0.3% in April following on from the 0.1% drop seen in March – with services, production and construction all shrinking.
The Office for National Statistics (ONS) said the reduction in NHS Test and Trace activity weighed on the economy, whist supply chain issues continue to hit factories.
Services fell by 0.3% in April 2022 and these were the main contributors to April’s fall in GDP, reflecting a large decrease (5.6%) in human health and social work, where there was a significant reduction in NHS Test and Trace activity.
Production fell by 0.6% in April 2022, driven by a fall in manufacturing of 1.0% on the month, as businesses continue to report the impact of price increases and supply chain shortages.
Construction also fell by 0.4% in April 2022, following strong growth in March 2022 when there was significant repair and maintenance activity following the storms experienced in the latter half of February 2022.
This is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021.
Darren Morgan, director of economic statistics at the ONS, said: “A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.
“Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.
“These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March.”
Reaction
Philip Dragoumis, owner of Thera Wealth Management:
“These numbers still don’t fully include the cost of living crisis and its effect on consumer spending, which means a sharper contraction – and potentially recession – is to come in the months ahead. Any additional rate rises should now be put on hold and there is an argument, too, for easing tax rises. Also, this is no time to start a trade war with Europe over the Northern Ireland Protocol.”
Marcus Wright, MD of Bolton Business Finance:
“If the Government wants to stop a recession, then we need action quick. SMEs are the backbone of the UK economy and they need help, especially with fuel and energy bills. With inflation still a concern, the Government needs to drastically cut spending to free up fiscal space to cut tax and VAT for our small businesses. It’s a difficult tight rope to walk but we need decisive action very quickly.”
Adrian Kidd, chartered wealth manager at Aylesbury-based EQ Financial Planning:
“Sadly, there is not much that can be done about the current economic situation we’re in. Central banks globally have failed in their inflation management, money printing and interest rate policies. They are now caught between two policy errors which are not putting rates up enough to curb inflation and putting up rates too much to push us into recession.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“The economic situation is dire. We need further emergency measures to prevent a prolonged and deep recession. If I was in Rishi Sunak’s shoes, I’d reinstate the £20 increase in Universal Benefit, remove the 5% VAT on gas, and slash VAT on everything else to 10% until we’re out the woods. That would help consumer confidence and bring forward spending on high ticket items, giving a major boost to economic growth.”
Dr Jackie Mulligan, expert on the Government’s High Streets Task Force and founder of the local shopping platform, Shopappy:
“The economy is deteriorating at a rate of knots. Based on what we’re seeing on the ground, the May and June data are set to be even worse. The contraction of the economy has a long way to go yet. Millions of families and small high street businesses are in an unimaginably difficult place, financially and emotionally.
“The terrifying level of inflation is a double whammy for the small family businesses that line the UK’s high streets. They’re being hit in the tills and in their own pockets at the exact same time. I hope that the Government will step in to help the thousands of family businesses that are struggling to stay afloat.”
Maria Hanson MBE, founder of the Derby-based charity, me&dee:
“Donations, like the economy, are grinding to a halt. Recently we have lost five of our regular monthly supporters. This is our only set income, and therefore a massive concern. Our number of applications have doubled and we do not have double the resources.”
Maryann Penfold, owner of Worthing-based artisan hot chilli sauce maker, Boom Sauce:
“I am genuinely worried about the future of my business as customers are spending much less and are unable to support small businesses like mine due to the rising cost of fuel, energy and food.
“I cannot increase my prices as that risks losing customers and equally I cannot reduce them as the cost of ingredients has shot up. Many small artisan producers like me are in a Catch-22 situation. Lowering prices when raw material costs are skyrocketing just isn’t viable.”
Monique Oliver, owner of Monique Oliver Art & Design:
“That the economy shrank in April doesn’t come as a surprise. For the past two years, I’ve been hanging onto my business by my fingernails and it’s emotionally draining. I genuinely fear for the future. This will be my last year in my own business unless things turn a corner soon.”
Keith Budden, MD at Hampshire-based IT security firm, Ensurety:
“Many small businesses are seriously concerned about the future. My confidence levels are back down to where they were during the pandemic. I worry that we may have yet another year with little measurable business growth.”
Marianne Clarke, owner of pet portrait and grooming company, Selston Groom and Train:
“The economy is a mess. The cost of everything just seems to be going up and up while sales go down and down. Small businesses are under incredible pressure right now.”
Ollie Hayes, a former professional rugby player, personal trainer and founder of So Fit Bath:
“Based on April’s data the economy is taking a real drubbing and it’s only going to get worse. The government just doesn’t seem to understand what life is like for working class people, who are currently being hammered from all sides.”
Jamie Rackham, founder of UK Facebook group, Not on Amazon, which has 193k small independent makers as members:
“Many of our group’s members are worried sick about the current state of the economy, and April’s data confirms why. The cost of living crisis, coupled with reduced sales, is a constant theme on our group. The Government has no idea what the average small business is going through right now.”
Dave Kelly, co-founder of Bristol-based butcher, Ruby & White:
“April was bad but it’s only going to get worse sadly. Inflation, soaring energy bills, tax and interest rate rises are crippling people and many small businesses are suffering as a result. For us, sales are still holding up for now but we are seeing slightly more people order cheaper cuts. We’re probably being helped by the fact that more people are choosing to stay in than go out.
“A decent cut of meat from a butcher and a bottle of wine from the supermarket are still significantly cheaper than eating out in a restaurant and for now that’s supporting our sales. However, we’re acutely aware of the financial pressures people are facing and will do our best to support our customers in the tough months ahead.”
Tara Squibb, owner of Welshpool-based Tara Squibb Ceramics:
“For many small businesses like mine, it’s really tough right now. We’re constantly struggling to stay afloat. I’m feeling less confident as time goes on, with everything increasing in price and another energy price hike looming later this year.
“The government isn’t supporting people and businesses, seemingly having a total lack of understanding of the pressures that people are facing. The priorities of this Government are totally unfathomable. Meanwhile, many small businesses are sinking fathoms deep.”
Gillian Colley, designer at Peterborough-based jeweller, Paper2Pearls:
“Inflation and the economy are causing me sleepless nights. I know many others are experiencing the same thing. Fuel and energy bill rises are the worst, as I need to keep my house warm and I am also dependent on my car. Almost everything costs more.
“The Government is displaying a complete lack of empathy and understanding of how the current economic crisis is affecting ordinary people.”
Laura-Jayne Gray, owner of Shropshire-based jeweller, Small Dog Silver:
“As the owner of a small jewellery business, I’m feeling the pinch in multiple ways. I’m experiencing a downturn in sales at the exact same time as material costs and overheads are rising, and it’s an extremely uncomfortable position to be in. Sales are at an all-time low, with people really not having the disposable income to spend on luxuries.
“I don’t see the current slump facing small independent creative businesses ending any time soon. I hope that we’ll still be able to carry on and survive into 2023 and beyond.”
Julia Usher, Managing Director at Burton-on-Trent-based Ashes Memorial Jewellery:
“As a small manufacturing and ecommerce jewellery business, we have found the past two months the toughest in our company’s history. In April, sales plummeted by 35% and in May they where flat. I have been in the retail jewellery industry for 20 years and I have never been more anxious about the current economic situation we find ourselves in.
“With rising inflation, the cost of living crisis and consumer confidence being at an all-time low, the retail sector is heading for an apocalypse if the Government doesn’t step in soon. For our business, sales are far worse now than they were in the pandemic.
“To try and increase sales we have had to offer more discounts, promotions and develop and craft cheaper products. This of course is not sustainable. With rising business costs and the ever-increasing gold price, we are been squeezed hard from all directions.
“The government is not doing nearly enough to support the retail sector. They need to act now and reduce VAT to 5% like they did for the hospitality industry during the pandemic. Without immediate action from the Government, the cost of living crisis will be the final nail in the coffin of the High Street and many small e-commerce retailers.”
Marie Peacock, CEO of Yorkshire’s Brain Tumour Charity:
“The current “cost of giving” crisis is much bigger, and is hitting our charity harder, than the pandemic ever did. There has been a huge drop-off in donations since the start of the year, not just in monetary donations but in charity shop donations of items, too.
“At the same time, we have seen a 95% increase in requests for our patient grants as people receiving a brain tumour diagnosis are finding themselves in a serious financial crisis. As a charity, we can’t keep up with the demand when our income is 61% down.
“The Government needs to step in to support charities so we can all get through the tough year ahead together, intact and meeting the needs of those we support who have had their lives turned upside down. If something isn’t done soon the future does not look very positive.”
Faye Jones, fundraising manager at Shepton Mallet-based charity, Happy Landings Animal Rescue:
“Since the increased price cap for energy in April, the number of donations we’ve received online has more than halved, and with the price cap set to rise further, things are looking exceptionally bleak. We’ve had a handful of people cancel their direct debits in the past month.
“Our supporters are worried about the state of their finances in the coming year due to higher inflation and rising interest rates, and are reluctant to sign up to any new financial commitments. The government needs to address the extenuating circumstances in which charities are operating; they have barely had time to recover from the pandemic, before being hit by record levels of inflation.
“People and communities throughout the UK rely on the critical support and services that charities provide. If the Government does not do more to ensure the longevity of the charitable sector and recognise the immense value that charities bring to people’s lives, it is ultimately the people in our communities who will suffer when these key services fall away.”
Claire Smith, owner of Moffat-based Cloudy Lemonade Jewellery:
“Running a business is exceptionally challenging right now. Everyone is cutting back on non-essential spending and jewellery, the sector I work in, is at the bottom of the pile. April was my weakest ever month for sales since launching nearly three years ago. It is only by offering 25% off my pieces that I have seen a pick up in sales. My prices are going down but postage and raw material costs are all going up. Does the government realise what is happening to small independent businesses? I worry about how many will survive this next year.”
Fiona Bowen, owner of Cardiff-based Silver Moon Art:
“I am a fledgling business and right now, in the current economic climate, it feels like a non-starter for me since people simply don’t have disposable income and my products are non-essentials. I am certainly less confident now than I was when I first started as a business, and that was during the pandemic. Any support the government gives to the economy only ever translates as money to the banks. It rarely finds its way to people like me.”
Maddy Alexander-Grout, CEO of the Southampton-based money-saving app, My VIP Rewards:
“As a money-saving app, you would have thought we would be thriving in the current climate, but people are being very cautious. Spending has been massively reined in and small businesses like mine are feeling it every day. We were hit really badly by the pandemic but the cost of living crisis is shaping up to be far worse. Small businesses are the beating heart of the economy, and if people stop supporting them, the current economic situation has the power to wipe them out. Even as a money specialist with a money saving app it’s getting harder to manage on what I pay myself.”
Kia Simpson, co-founder at Dorset-based eco-friendly product store, Moonie:
“The government doesn’t understand the pressure independent businesses are currently under. It really is make or break time. The increased cost of living has had a huge impact on consumer spending.
“Our customers are having to decide between price and quality. However, it’s during difficult times like this that great businesses are formed. 2022 has already taught us so many powerful lessons. Despite the squeeze on household spend, it’s crucial for small businesses to create purposeful products and push forward a sustainable agenda.”
Seena Gosrani, owner of London-based jeweller, Bottlebee:
“The current financial climate for small businesses is brutal. As an independent goldsmith, I have found the raw metal prices for gold and silver have increased at an eye-wateringly high rate. All my suppliers have increased their prices as they need to make a profit. People need to eat and keep warm to live, but they don’t need luxury items like the jewellery I make. So how are small businesses like mine expected to survive?”
Friday Lawrence at Forest of Dean-based Friday Lawrence Silverware:
“The economy is in a state and inflation is out of control. The inflationary pressure on small businesses is proving unbearable for many and there’s no guarantee raising interest rates will alleviate it. The Government should be focused on supporting small businesses and households who are under a massive strain. Instead, billion pound companies announce huge profits and avoid tax.”
Claire Tasker, founder of Hitchin (Herts)-based Claire Tasker Jewellery:
“It’s an extremely worrying time for small business owners right now. People are already having to make decisions on what to cut back on because of the cost of living crisis and the fact they’re struggling to make ends meet. As well as this, the cost of raw materials and tools have continued to rise sharply for me since the start of Brexit. I really don’t want to have to raise my prices but, long term, my current prices just aren’t sustainable. I’m finding it very stressful to try and predict what will happen. Sales have fluctuated during the past two years due to the pandemic and now the cost of living crisis is amplifying the challenges people like me face.”
Ruth Bradford of Bristol-based The Little Black and White Book Project:
“With each day that passes, my concern about inflation and the economy is growing as people simply aren’t spending. As a consumer I totally get it, it’s not pretty out there, but as a business owner it feels like I’m on borrowed time. All I can do is hope that the website traffic I am seeing does come back and convert at some point as people still seem to be largely browsing. It’s just so hard to predict anything right now and I can’t help feeling it’s just going to get worse.”
