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UK economic growth falls in April as inflation hits demand

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The inflation pressure on businesses rose at the fastest rate in 24 years. Photo: PA
The inflation pressure on businesses rose at the fastest rate in 24 years. Photo: PA

Output growth across most sectors in Britain slowed last month as surging inflation weighed on demand for goods and services as the costs of food, energy and materials surged to record highs.

According to the latest Lloyds Bank (LLOY.L) UK recovery tracker, eight out of the 14 sectors experienced a slower rate of output growth month-on-month, compared to four more compared to March.

The slowdown in output growth was driven by consumers and businesses reining in spending amid worries over 40-year high inflation as prices surged 9% during the month.

Eleven out of 14 sectors reported weaker demand for new orders last month, the highest number since July 2021.

Businesses’ own inflationary pressures rose at the fastest rate in 24 years of the tracker’s underlying data in April. The tracker uses PMI data from S&P Global to shed light on current trends in the UK economy.

The price customers were charged in April jumped at a record pace as the cost of living surged. The tracker’s prices charged index posted a record surge from 68.3 in March to 69.4 last month.

A reading above 50 on the tracker indicates growth, while a reading below 50 indicates contraction.

Price increases were most common among manufacturing companies, particularly automobile and auto parts (85.9) and food and drink (80.8) producers.

Figures from the ONS show factory gate prices also jumped 14% last month. Food prices increased 6.7% – the fastest rate since 2011 – in the year to April, as Russia's invasion of Ukraine drove up the cost of cereals, cooking oil and meat.

"Consumers are becoming far more conservative in relation to spending as the cost of living rises – which in turn is having a direct impact on business’ output growth," said Jeavon Lolay, Head of Economics and Market Insight at Lloyds Bank. "Businesses are also battling intense cost pressures, with a record share of firms reporting raising prices to maintain margins."

Read more: UK inflation hits 40-year high of 9% as cost of living squeeze intensifies

Overall month-on-month order volumes grew across firms in the services industry, despite the sector recording the sharpest slowdown in order growth.

It shows that service sector new orders index fell by five and a half points to 54.9, compared to a decline of 0.1 points in the equivalent manufacturing sector index (51.7), between March and April.

Service sector costs in April also increased at the greatest extent on record, as companies grappled with rising goods prices, salary pressures and energy costs.

Tourism and leisure firms recorded the fastest uptick in input prices of any services sector recording 91.4 on the tracker’s input price index followed by transportation businesses at 87.6.

Read more: UK economy shrinks in March as GDP falls

Six out of the seven manufacturing sectors monitored by Lloyds reported faster input cost inflation.

Firms reporting higher energy cost reached the highest level since October 2021.

Manufacturers were 16 times more likely than the long-run average to report higher energy costs and five times more likely to report more expensive material costs.

Meanwhile, a spike in agricultural commodity prices underpinned record cost inflation for food and drink manufacturers for a second month in a row, registering 96.8, up from 94.3 in March.

The pace of growth in the manufacturing sector during the period was the softest in 15 months.

Metals and mining producers registered the sharpest month-on-month drop in output to 47.6 in April from 64.4 in March as new business contracted (49.0 in April vs. 58.6 in March).

However, despite inflationary pressures, employment levels went up during the month, with 13 of the 14 sectors registering a rise in employment over April, the same proportion as March as businesses maintained efforts to clear staffing backlogs, according to Lloyds.

Watch: How does inflation affect interest rates?