(qlmbusinessnews.com via bbc.co.uk – -Fri, 9th Aug 2019) London, Uk – –
The UK economy contracted 0.2% between April and June, its worst performance since 2012, the Office for National Statistics said.
The surprise contraction came after a boost to economic growth in the first three months of the year because of Brexit stockpiling.
Rob Kent-Smith, head of GDP at the ONS, said manufacturing output fell and the construction sector weakened.
The pound slipped after the data was released, raising fears of a recession.
A recession occurs when the economy contracts in two consecutive quarters.
Economists had not been forecasting a contraction in the economy in the second quarter, but had expected it to stagnate, with the consensus forecast for 0% growth.
Why is the economy shrinking?
The economy had shown 0.5% growth in the first quarter after manufacturers' stockpiling ahead of Brexit helped to boost output, when the manufacturing sector recorded its biggest quarter rise since the 1980s was recorded.
The ONS said GDP had been “particularly volatile” so far this year because of the changes to activity sparked by the original Brexit date of 31 March.
The statistics body said its latest figures showed that those increased stockpiles had been partly run down in the second quarter and that a number of car manufacturers had brought forward their annual shutdowns to April as part of contingency planning, which also hit growth.
Mr Kent-Smith said: “Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK's original departure date from the EU.”
He added that “the often-dominant service sector delivered virtually no growth at all”.
BY Faisal Islam
The economy has contracted over a quarter for the first time since 2012, raising the risk that the UK might be in a technical recession.
The numbers do contain some distortions that flattered growth in the first quarter, and have depressed it in the second, including stockpiling for a no deal Brexit.
They also contain the post no deal shutdowns of car factories around the first Brexit deadline in March.
But there are some real and enduring weaknesses in this number too, some of which is down to poor levels of investment, and some down to poor global growth.
This figure though is set to be the worst in the G7. The UK should avoid a recession if expectations of growth in this quarter are fulfilled, but that is not guaranteed. It is not the welcoming present that a new chancellor and PM would have wanted.
What else is happening to growth elsewhere?
The data comes at a time when there are signs other economies are slowing. For instance, data on Friday showed that French industrial output also fell more than expected in June.
Chancellor Sajid Javid said: “This is a challenging period across the global economy, with growth slowing in many countries.
“But the fundamentals of the British economy are strong – wages are growing, employment is at a record high and we're forecast to grow faster than Germany, Italy and Japan this year.”
But John McDonnell, the shadow chancellor, said the “dismal economic figures are a direct result of Tory incompetence”.
“The Tories' Brexit bungling, including Boris Johnson now taking us towards no-deal, is breaking the economy.”
What does business say?
The employers' body, the CBI, said the contraction was “concerning”.
Alpesh Paleja, CBI lead economist, said: “Growth has been pushed down by an unwind of stockpiling and car manufacturers shifting their seasonal shutdowns.
“Nonetheless, it's clear from our business surveys that underlying momentum remains lukewarm, choked by a combination of slower global growth and Brexit uncertainty.
“As a result, business sentiment is dire.”
The Federation of Small Businesses – which is calling for an emergency Budget – said that if the Treasury delays action until after 31 October, the date for Brexit, its efforts are likely to prove too little, too late.
“Time is of the essence. Unless the chancellor steps in imminently with radical action, we could be heading for a chaotic autumn – and a very long winter,” said the FSB's policy and advocacy chairman, Martin McTague.
How have economists reacted?
Chris Williamson, chief business economist at IHS Markit, said the data showed “an economy in decline and skirting with recession as headwinds from slower global growth are exacerbated by a Brexit-related paralysis”.
Geoffrey Yu of UBS Wealth Management said that while the global picture was “becoming more gloomy”, anyone looking for positive signs for the economy could look to “robust private consumption, reflecting a healthy labour market”.
Household spending rose 0.5% on the quarter. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, agreed that household spending was still growing at a “robust rate” said it was not time to panic.
He said the stockpiling was dragging on the economy, which was “sluggish and had not stalled”.
What has happened to the pound?
The pound – which has been at two-year lows on Brexit uncertainty – fell 0.2% against the dollar to $1.2106.
The currency also falls if there are expectations that interest rates will be cut. Mr Tombs said the market now sees a 70% chance of an interest rate cut in January, when Mark Carney is due to leave as the Bank of England's governor.