It’s been slim pickings this past week for those of an optimistic bent as fears mount over the health of the UK economy, with suggestions that Britain is on course to reclaim the title of “the sick man of Europe”.
It began with the unsettling news on Monday that the UK economy unexpectedly shrank in April for the second month running, highlighting the growing risk of recession. The Office for National Statistics said gross domestic product (GDP) fell by 0.3 per cent in April, following a 0.1% contraction in March.
More worryingly, perhaps, was that for the first time since the national lockdown of January 2021 all three of the UK’s main sectors – services, industrial production, and construction – registered falling activity.
Tuesday’s unemployment figures brought little respite with an unanticipated increase in joblessness across the UK during the three months to April, suggesting that the weakening economy is starting to feed through into a softer labour market.
READ MORE: Transport giant FirstGroup lifts profits and brings back dividend
UK unemployment edged higher to 3.8% versus 3.7% during the three months to March, but the picture in Scotland was more positive as unemployment remained at a record low of 3.2%. However, any sense of triumphalism was quashed by the fact that take-home pay continued to shrink as inflation erodes real wages.
Using the UK consumer price index, real-terms pay in April was 0.5% lower than a year before, the biggest drop since August 2020 when many workers were on reduced furlough pay. Stripping out bonuses, pay fell by 3%, the largest such inflation-adjusted drop since November 2011.
With inflation currently running at 9% and expected to reach 11% this autumn, it was with little surprise on Thursday that the Bank of England’s Monetary Policy Committee (MPC) announced a six-to-three vote in favour of raising interest rates by 0.25% to a 13-year high of 1.25%. The only point of difference with the dissenters was that they were pushing for a heftier increase of 50 basis points to take the benchmark cost of borrowing to 1.5%.
Amid the biggest squeeze on consumer spending in some 50 years, the UK’s ability to pull itself out of the slump triggered by the Covid pandemic looks tenuous at best.
READ MORE: WH Smith rebounds with the return of commuters and travellers
There were a couple of faint glimmers of hope on that front, with retailer WH Smith saying on Wednesday that third-quarter revenues had beat pre-pandemic levels for the first time with the return of tourists and more people commuting to work. And as reported by deputy business editor Scott Wright, FirstGroup posted a rise in operating profits during the year to March 26 as passengers returned to public transport.
Yet with next week’s national rail strikes set to slash services, even this small bit of momentum is under threat of grinding to a halt.
Colin Wilkinson, managing director of the Scottish Licensed Trade Association (SLTA), has warned of the “very serious” consequences this will have for tourism and hospitality firms in particular.
“To put it bluntly, the hospitality sector just can’t take any more,” he said.
“Businesses are slowly recovering after the pandemic and just when most are feeling optimistic for the first time and looking forward to a good summer, along comes a national rail strike which will deter people from travelling into our towns and cities.”
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