UK GDP fell by 0.3% in April, a turnaround from the growth seen in March, and a sharper fall than expected by many economists.

Economists’ consensus expectation had been for a 0.1% contraction in GDP.

However, the economy still grew by 0.7% in the three months to April compared to the previous quarter.

Whilst the services sector accounted for most of the growth during the quarter, in April it was the largest contributor to the fall in GDP at 0.4%.

Production output continued to struggle, falling by a further 0.6% in April after March’s fall of 0.7%.

Lindsey James, investment strategist at Quilter, said today’s GDP figures could drive further fears around more tax rises.

She said: “The data will come as a blow to Rachel Reeves – albeit a somewhat expected one – having just yesterday delivered her spending review which promised considerable spending. While the Chancellor laid out her plans to spend yesterday, it was unclear where any cuts would be coming from.

“Investors have already been highly cynical about the government’s spending plans and its fiscal rules, and today’s figures will likely spur further uncertainty around affordability. With the economy now weakening, we can expect to see concerns around further tax rises increase as we near the autumn budget – which is likely to weigh on growth even more.”

Rob Morgan, chief investment analyst at Charles Stanley, agreed that further tax rises now seem more likely.

He said: “The longer-term investment plans set out in yesterday’s spending review stand to kick start growth and ameliorate some of the deep-set problems. But in the meantime, a stagnant economic picture could push the envelope of Chancellor Reeve’s fiscal rule of funding day-to-day spending from taxation. Especially given the partial backtrack on the Winter Fuel Payment estimated to cost over £1bn.

“There’s little scope for extra borrowing to plug any gap. The spectre of the ill-fated Liz Truss premiership still haunts the current government’s thinking and underlines the risk of any loss of credibility on public finances. This leaves increasing levels of taxation as the only remaining option should growth disappoint unless the Chancellor is prepared to make cutbacks.

“Investors should therefore take extra care they are fully using appropriate shelters such as ISAs, and do not take for granted the potential of pension tax relief – notably via salary sacrifice arrangements where there is already speculation of future restrictions.”