Surging inflation, supply chain disruption and staff shortages take toll on economy

13 June 2022

The UK economy shrank by 0.3% in April, with all sectors reporting a decline in growth for the first time since January 2021.

David Bharier, the Head of Research at the British Chambers of Commerce (BCC) said the decline was inevitable given surging inflation, supply chain disruption and staff shortages.

According to figures from the Office for National Statistics (ONS), all the main sectors of the economy – services, manufacturing and production – shrank, with the economy’s performance in April being weaker than expected.

Prices are rising at their fastest rate for 30 years, driven by record-high fuel and energy costs.

The Bank of England has forecast that inflation – the rate at which prices rise – could reach more than 10% by the end of the year.

David Bharier said: “The fall of 0.3% in April, following a 0.2% decrease in March, highlights the increasing stress the UK economy is under. All main sectors have seen a fall in growth, the first time since January 2021.  

“This decline is the inevitable outcome of surging inflation, supply chain disruption and widespread skills shortages.  

“Businesses from all sectors are facing unprecedented rises in raw material costs, soaring energy bills, and wage pressures. The introduction of an increase to employer National Insurance Contributions in April has only further added to firms’ woes.  

“This declining output comes off the back of two years of significant damage sustained by small businesses, whose weakened cash positions mean that they are in a far worse position to stomach further pressure. The global aspects to all these problems mean they are likely to weigh heavily on the UK’s prospects for growth for some time. 

“Output in consumer-facing services increased by 2.6% in the month, reflecting increased consumer spend on hairdressing and food services. However, the sector remains below pre-pandemic levels, highlighting the significant damage sustained from shutdowns and restrictions. 

“Declining business investment remains a serious cause for concern and urgent Government action is needed to halt this fall. Cutting VAT on businesses’ energy bills to 5% would ease the squeeze on firms’ cashflow and give them some room for manoeuvre.”