TOP NEWS: UK economy in second straight month of contraction in April

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(Alliance News) - The UK economy unexpectedly contracted again in April, leaving the Bank of England in a tough spot when it meets later this week.

Data from the Office for National Statistics on Monday showed gross domestic product contracted by 0.3% in April on a month before, badly missing FXStreet-cited market consensus of 0.2% growth. The reading also marked a deterioration from March's 0.1% fall.

Services activity shrank by 0.3% in April - the largest contributor to April's drop in GDP - reflecting a substantial decrease in human health and social work, where there was a ‘significant reduction’ in NHS Test & Trace activity. Production fell by 0.6%, driven by a fall in manufacturing, and construction activity fell 0.4%.

‘A big drop in the health sector due to the winding down of the Test & Trace scheme pushed the UK economy into negative territory in April. Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices,’ said Darren Morgan, director of Economic Statistics at the ONS.

The ONS added that this is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021.

In the three months to April, GDP rose by 0.2%.

The data comes ahead of Thursday's Bank of England meeting, with markets expecting the central bank to raise interest rates again.

‘The 0.3% month-on-month fall in GDP in April isn't as weak as it looks, but nonetheless increases the chances that the Bank of England opts for a 25 basis points rise in interest rates on Thursday rather than the 50bps hike we are forecasting,’ said Capital Economics.

Separately, figures on Monday showed the UK trade in goods deficit, excluding precious metals, widened by £10.3 billion to £61.5 billion in the three months to April compared with the three months to January.

Exports to the EU increased for the third consecutive month in April and are at the highest level since records began, the ONS noted.

By Lucy Heming; lucyheming@alliancenews.com

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