Desperately disappointing GDP figures a major setback for Labour government

The Labour government has suffered a major setback with the release of the desperately disappointing April GDP figures, which revealed the largest monthly contraction since October 2023.

British businesses are facing a barrage of risks, as they begin to feel the pinch from higher tax rates and salary costs, while wrestling with global trade uncertainty brought about by US tariffs. Households also find themselves in a tough spot, with disposable incomes squeezed by surging inflation and rising energy bills.

Today’s data will do nothing to dispel fears that a sharp slowdown in the UK economy is practically inevitable in the second quarter. This will intensify scrutiny on Chancellor Reeves, particularly as it comes hot off the heels of a dire jobs report that showed the largest drop in payrolled employees since the pandemic.

Sterling has sold off this morning as markets bet that the weak GDP report will force the Bank of England into delivering another rate cut in the summer. While there is little chance of any change at next week’s meeting, we see a strong possibility that the MPC ditches its hawkish bias, which could pave the way for an August cut.