Recession fears grow as UK economy shrinks

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14th June 2022

Bite-sized business news from the UK and beyond

Good morning Should employers be doing more to help workers cope with the cost of living crisis? Lloyds Bank certainly feels that way. Yesterday the UK’s biggest high street bank announced it will give out £1,000 bonuses to its staff in a bid to help them pay their bills amid 40-year high inflation. Lloyds says that 99.5% of its 65,000 employees will be eligible for the extra cash.

Today's stories

Recession fears grow as UK economy shrinks
UK and EU tussle over Brexit trade deal

ECONOMY
Recession fears grow as UK economy shrinks

What happened?
The latest official data released yesterday showed that the UK economy contracted by 0.3% in April from March – worse than the 0.1% growth expected by economists.

It’s the second month in a row that the economy has declined raising fears that the UK could be heading towards a recession, defined as two consecutive quarters of negative growth.

There are worrying trends emerging. Typically different areas of the economy are growing or declining but in April there was contraction across the board for the first time since January 2021:

Services, which makes up around two-thirds of the economy, fell by 0.3% driven by the reduction in NHS Test and Trace activity.
Manufacturing fell by 1.0%, as businesses continue to report the impact of price increases and supply chain shortages.
Construction also fell by 0.4% following strong growth in March when the industry was busy repairing the damage from the storms the month before.

It leaves a growing headache for policymakers. With inflation running at 9% – way beyond the 2% target – the Bank of England is expected to announce its fifth straight interest rate rise later this week. But increasing the cost of borrowing will add further pressure to household budgets already facing rising energy and food bills.

The same fears of high inflation and low growth is gripping countries worldwide. Major stock markets across the UK, US and Europe fell yesterday as investors are anxious that more aggressive interest rate rises to try to tame inflation could tip economies into recession.

But fears for the UK economy are particularly acute. The OECD, which forecasts the performance of major economies, predicts that the UK economy will be the weakest of its G7 peers in 2023 reflecting the impact of high inflation and interest rates.

The next few months could bring more contraction. Risks are growing that the economy continues to fall between April and June because of the cost of living squeeze, supply bottlenecks and an extra bank holiday.

Other stories to keep you in the loop

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Russia made £79bn in first 100 days of Ukraine war by selling oil and gas to the world
Elon Musk to hold first meeting with Twitter staff this week
US stores report tampon shortage as women struggle to find product

BREXIT
UK and EU tussle over Brexit trade deal

What happened?
In the latest chapter of the Brexit saga, the UK government has announced highly controversial plans to ditch parts of the post-Brexit deal agreed three years ago.

How did we get here?
As part of the Brexit deal signed in 2019, Northern Ireland was kept in the single market while the rest of the UK left in a rule known as the Northern Ireland Protocol. The idea was that it was the best way to preserve the Good Friday Agreement - a peace treaty between Northern Ireland and the Republic of Ireland signed in 1998.

To avoid doing checks on goods entering the EU along the Northern Ireland / Republic of Ireland border, the protocol said they would be done between Great Britain and Northern Ireland instead.

This allowed free movement of trade between the Republic of Ireland and Northern Ireland. This means lorries don't have to stop and prove their goods follow EU rules when they go between Northern Ireland (in the UK) and the Republic of Ireland (in the EU).

The protocol came into place at the start of 2021 and since then has caused headaches for the UK and EU due to the checks and controls which has led to delays in delivering goods.

If passed, the legislation unveiled by the government yesterday would remove most checks between Great Britain and Northern Ireland.

The government believes scrapping the protocol is essential to easing trade disruption between Northern Ireland and the rest of the UK and upholding the Good Friday Agreement.

What has the EU said? Unsurprisingly it’s not happy and says ditching the border checks would flout international law. It’s threatening legal action, something that would sour relationships and make coming to an agreement even harder. There are fears that this could spark a damaging trade war, the last thing the UK economy needs during a cost of living crisis.

Next steps: The bill will be debated and voted on in Parliament where it’s expected to receive a lot of opposition.

Stat of the day

Google will pay $118m to settle a lawsuit that includes over 15k women who accuse the tech giant of paying them less than their male counterparts

Interesting links from around the web

How to make the most of the rest of 2022
Bill Gates’ top picks for summer reading
How to work out if you’re living beyond your means

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Recession fears grow as UK economy shrinks

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