UK economy contracts 0.4% in April as car production slumps

The UK economy shrank more than expected in April as car production tumbled, according to data released by the Office for National Statistics.

Gross domestic product fell by 0.4% on the month in April, coming in much weaker than consensus expectations of a 0.1% contraction. This was the second monthly contraction in a row and the weakest monthly growth rate in three years.

The unwinding of the stockpiling boost, which saw firms increase their stock levels in the first quarter ahead of a possible no-deal Brexit on 29 March was one of the factors behind the decline. A 24% decline in car production also weighed, as car manufacturers decided to bring forward their annual production shutdowns from August to April in case of a no deal scenario.

For the three months to April, growth slowed to 0.3% from 0.5% in March, falling short of expectations for 0.4% growth.

Head of GDP Rob Kent-Smith 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.

"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."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said April’s drop in GDP almost entirely reflects the unwinding of the boost to activity in the first quarter from precautionary pre-Brexit stockpiling.

"The drop was driven by a huge 2.7% month-to-month decline in industrial production, primarily reflecting a 3.9% drop in manufacturing output, the biggest since June 2002. Output fell in most manufacturing sub-sectors, amid a pullback in demand from artificially high levels in Q1.

"Note too that motor vehicle production slumped by 24%, as car plants brought forward their annual maintenance shutdowns from the summer, to minimise the losses they would have experienced if a no-deal Brexit had occurred in April. Output in this sector should fully rebound in May, boosting GDP growth by 0.17pp."