BoE's Bailey: UK economy is not close to recession

BoE's Bailey: UK economy is not close to recession

The UK economy experienced a surprising contraction in April, according to the latest S&P Global PMI survey. The composite reading of 48.2, below the 50 mark, indicates a significant slowdown from March's robust 51.5, disappointing market expectations [1]. This marks the largest fall in output since nearly two and a half years ago.

Chancellor Rachel Reeves' fiscal policies, including the rise in employer National Insurance Contributions and the mandatory increase in the minimum wage, are being blamed for the economic downturn. Employers' National Insurance Contributions (NICs) increased from 13.8% to 15% in April 2025, while the secondary threshold dropped from £9,100 to £5,000. The National Living Wage for those aged 21 and over also rose to £12.21 per hour [1].

The survey revealed that cost burdens increased sharply, with the overall rate of input cost inflation being the fastest since February 2023. Businesses reported struggling to keep their heads above water, with job cutting at "aggressive" levels [1].

Optimism about the economic outlook has collapsed to a two-and-a-half-year low, surpassing even the lows seen after the Brexit vote in 2016. The collapse in confidence and output raise concerns about the near-term economic outlook [1].

Weaker demand from international markets also played a significant role in the economic slowdown. Total new work from abroad decreased sharply, at the fastest pace in nearly five years. The services sector, the UK's dominant sector, experienced a significant slump, while manufacturing is struggling under the burden of high electricity costs and tariff uncertainty [1].

Despite the economic slowdown, the Bank of England's Governor, Andrew Bailey, maintains that the UK economy is not close to recession. However, the policies introduced by Chancellor Rachel Reeves are proving to be inflationary, potentially limiting the Bank's ability to stimulate the economy through interest rate cuts [1].

References:
[1] https://www.poundsterlinglive.com/economics/21780-reeves-trump-sink-the-uk-economy