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Home Business and Economics Economics

UK one negative quarter away from recession as economy shrinks in second quarter

Economists had predicted growth to flatline at 0 per cent – but GDP actually contracted by 0.2 per cent, a fairly big miss.

Jack Peat by Jack Peat
2019-08-09 09:42
in Economics
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Britain is one negative quarter away from a recession after the economy shrank in the second quarter.

ONS data released today showed the economy contracted by 0.2 per cent in the second quarter following growth of 0.5 per cent in Q1.

Sterling has fallen against the US dollar and the euro in the aftermath of the GDP figures.

The pound is now down by 0.3 per cent against the euro and 0.25 per cent against the US dollar, after UK economic growth came in significantly lower than expected.

Economists had predicted growth to flatline at 0 per cent – but GDP actually contracted by 0.2 per cent, a fairly big miss.

It is the first time the UK economy has contracted since 2012, with the abrupt loss of momentum coming as many firms ran down inventories built up ahead of the original March 29 deadline to leave the European Union.

New Statesman Assistant Editor George Eaton warned that the UK is in a “far weaker position for another recession than in 2008” because there’s less room for fiscal and monetary stimulus.

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UK in far weaker position for another recession than in 2008: 1. Threat of no-deal Brexit. 2. Interest rates already just 0.75% (compared to 5% in 2008). 3. Government debt is 83.1% of GDP (compared to 35.2% pre-crisis). Less room for fiscal and monetary stimulus.

— George Eaton (@georgeeaton) August 9, 2019

Stock levels fell by 4.4 billion pounds ($5.3 billion), knocking 2.15 percentage points off GDP.

The economy was also hit by auto factories bringing forward summer maintenance shutdowns to April to avoid the threat of supply disruptions around the original Brexit deadline.

Manufacturing, which enjoyed a bumper first quarter, shrank 2.3 per cent in the following three months, the most since 2009.

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