Echoes of 1970s for UK economy
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News this morning that the economy had shrunk for the second month in a row is the latest piece of evidence that the UK is suffering from the worst combination of surging prices and lack of growth since the 1970s.
GDP fell in April by 0.3 per cent, far more than forecasts had suggested, sending the pound down to a two-year low against the dollar.
The decline was across all sectors but was led by a 5.6 per cent drop in health services as the NHS test and trace programme wound down. The services sector overall fell by 0.3 per cent, while production was down 0.6 per cent as businesses were hit by price rises and supply chain problems. Construction slipped 0.4 per cent.
Today’s data follow forecasts last week from the OECD which said the UK would have the weakest growth in the G20 outside Russia. Zero growth was predicted for next year as the economy stagnated. Separate FT analysis said the UK would experience the highest inflation in the G7 from now until 2024.
One of the factors contributing to the country’s cost of living crisis is soaring petrol prices, something acknowledged today by the UK’s competition watchdog as it launched an investigation into the retail fuel market. Business secretary Kwasi Kwarteng had queried whether the government’s cut in fuel duty was being passed on to drivers.
The surge in inflation means the Bank of England is still likely to raise interest rates after its policy meeting on Thursday, despite the poor growth figures. Most economists expect a rise of 0.25 per cent.
Separate data from this morning show the UK is also suffering its second-largest trade deficit since records began in 1997 after importing £24.3mn more than it exported in the three months to April.
Trade is at the heart of today’s other big UK story: the move by the government to rip up its own Brexit deal by expunging key elements of the Northern Ireland protocol, which governs relationships between the province, mainland Britain and the EU.
Under the proposals, goods from Great Britain destined to stay in Northern Ireland would go through a “green lane” with no checks, while those heading across the open border into the Republic of Ireland and the EU single market would face “red lane” checks.
The measure would end the role of the European Court of Justice in policing the protocol as well as giving Westminster sweeping new powers, but faces strong opposition from many MPs, the House of Lords, the Irish government and the business community in Northern Ireland, which currently benefits from being part of the European Single Market as well as the UK internal market. Today the EU said it would launch legal action as Brussels and London moved closer to a possible trade war. Here’s our explainer on the bill and why it’s so contentious.
Prime minister Boris Johnson argues that the protocol has created political tensions as well as business disruptions between Northern Ireland and the rest of the UK.
Environment Secretary George Eustice says UK will bring forward another 10,000 visas for seasonal workers and expand scheme to cover poultry (Press Association)
EU agency sees risk of Covid deaths rising as Omicron subvariants spread (Reuters)
Berlin working on multibillion euro rescue for Gazprom Germania
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Need to know: the economy
It’s an important week for central banks and interest rates. The Bank of England’s decision is preceded on Wednesday by the US Federal Reserve, which is expected to announce the first back-to-back half-point interest rate rises since 1994. Announcements also come from Brazil (Wednesday), Switzerland (Thursday) and Japan (Friday).
China’s major cities returned to lockdowns and mass testing over the weekend as Covid cases continued to spread. Global China editor James Kynge says the human and economic cost of Beijing’s “techno-authoritarian” zero-Covid strategy is mounting.
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Our Big Read looks at the role of the World Trade Organization in an era of fracturing alliances and trends towards deglobalisation. As this week’s ministerial meeting in Geneva got under way, WTO director-general Ngozi Okonjo-Iweala urged governments to end export restrictions on food which she said were exacerbating problems caused by Russia’s invasion of Ukraine.
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