The UK economy contracted by 0.4 per cent in April as car plant shutdowns due to Brexit and the unwinding of stockpiling dented output, official figures have revealed.
Sterling fell below $1.27 as traders digested the worse-than-expected news. It had fallen 0.4 per cent to buy $1.269 by 10.30am UK time.
The poor reading meant British GDP grew by 0.3 per cent in the three months to April, compared to 0.5 per cent from January to March, figures released today by the Office for National Statistics (ONS) have shown.
Car manufacturing fell by 24 per cent in April as firms planned shutdowns around the original Brexit departure date of 29 March.
The Society of Motor Manufacturers and Traders (SMMT) found that car manufacturing was 45 per cent lower in April than a year earlier.
Car companies such as Jaguar Land Rover and BMW brought forward planned shutdowns, which occur each year, to coincide with 29 March to mitigate the effects of a possible no-deal Brexit on their complex supply chains.
The unwinding of the stockpiling boost seen in March, where preparations for Brexit increased demand, also dragged on GDP in April.
Today’s GDP figure followed a contraction of 0.1 per cent in March, and was below economists’ predictions of another 0.1 per cent fall.
The data suggests Britain’s second quarter growth rate will be lower than the 0.5 per cent achieved in the first quarter.
In the three months to April, the manufacturing sector grew by 1.2 per cent, while the service sector expanded by 0.2 per cent and construction 0.4 per cent.
Rob Kent-Smith, head of GDP at the ONS, said: “GDP growth showed some weakening across the latest three months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns.”
He said: “There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK’s original EU departure date has faded.”
Howard Archer, chief economic advisor at the EY Item Club, said: “The UK economy started off the second quarter very much on the back foot following the decision to delay Brexit to a flexible deadline of 31 October.”
Yet he said the weakness ran deeper than just car plant shutdowns, “as 11 of the 13 manufacturing sub-sectors saw output falls in April – suggesting that there was also likely some initial payback from the boost to output that had come in the first quarter from stockpiling” ready for Brexit.
Ruth Gregory, senior UK economist at Capital Economics, said the poor reading meant “it’s now possible that GDP won’t rise at all or even contract” in the second quarter, whereas previously “we had thought GDP would rise by 0.2 per cent quarter on quarter”.