Analysts have warned that the possibility of a recession has increased after the UK economy fell in March, just as the country was recovering from the pandemic. Higher prices are “starting to bite,” according to the UK statistics authority, with individuals spending less and reducing car trips as a result of rising fuel prices.

The effect of rising energy prices in April is also unknown.

The economy expanded by 0.8 percent in the first three months of the year, but dropped by 0.1 percent in March as consumers trimmed back.

The economy saw its biggest boost in January, as the hotel and travel industries recovered from the effects of the coronavirus outbreak.

That was, however, before the Ukraine war and before people began to feel the strain of rising prices.

The latest numbers, according to Paul Dales, chief UK economist at Capital Economics, “indicate the economy had less impetus than we believed even before the full impact of the cost of living crisis has been felt.”

He went on to say that the risk of recession, which is defined as the economy shrinking for two consecutive three-month periods, “has just increased.”

The National Institute of Economic and Social Research warned on Wednesday that the compression on household earnings would lead to a recession in the UK in the second half of 2022.

The Bank of England predicted last week that inflation – the rate at which prices grow – might hit 10 per cent by the end of the year.

The Bank of England has warned that the United Kingdom is facing a “sharp economic slowdown,” with prices growing at their quickest rate in 30 years, owing to rising gasoline, food, and energy costs.

Individuals have already started spending less, according to Darren Morgan, head of economic statistics at the ONS, with shop sales “far below forecasts” in March and people cutting back on “large cost, non-essential purchases.”

Individuals had already begun to spend less, according to Darren Morgan, head of economic statistics at the ONS, with March retail sales “far below estimates” and people cutting back on “large cost, non-essential purchases.”

“You can see the cost of living really beginning to bite,” he added.

According to the ONS, the services sector, which accounts for the majority of the UK economy and includes jobs in hotels, finance, and real estate, was the greatest contributor to the economy declining in March.

The automotive industry, which Mr Morgan said was “very much hurting” as sales decreased, was the worst performer in the sector.

March was the “weakest” month for new automobile registrations since 1998, according to the Society of Motor Manufacturers and Traders, as supply chain issues hampered automakers.

Following the revelation of the weaker-than-expected growth data, the UK’s FTSE 100 stock index plummeted 2 per cent.

Morgan added that a study of 40,000 businesses by the ONS indicated that over half had witnessed a rise in the price of wholesale materials and goods, but only half of those firms were passing the costs on to their customers.

“They are absorbing those rises and you do have to question how sustainable that is on an ongoing basis,” he said.

Many businesses expect the price of goods to increase further, and “their big concern is energy prices,” Morgan added.

(Adapted from BBC.com)

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