The UK economy contracted by 0.6 in June and shrank 0.1 per cent between April and June, compared to growth of 0.8 per cent in the previous three months, the Office for National Statistics said this morning.
The UK’s economy shrank over the last three months as spending on test and trace and the Covid-19 vaccine programme subsided, figures show.
Gross domestic product (GDP) fell by 0.1% between April and June, the Office for National Statistics said.
It is a big step down from the first quarter of the year, when GDP rose 0.8%.
Recession
The data may not be the start of a recession – which is defined as two quarters of GDP decline – but experts are predicting the UK will slip into a recession later this year.
“While we see increasing signs of underlying weakness in the economy, we expect a more severe downturn to take place only from towards the end of this year,” said Yael Selfin, chief economist at KPMG UK.
The downturn is likely to start next quarter after Ofgem hikes the price cap on energy bills in October by an estimated 84% to £3,634, according to the latest predictions.
The Bank of England has predicted that the economy will shrink in the final quarter of this year and then every quarter in 2023.
The most recent drop came as GDP shrank by 0.6% in June, and growth estimates for May were revised down from 0.5% to 0.4%.
Commenting on the gross domestic product (GDP) figures that showed a 0.1 per cent contraction in the second quarter of the year, Office for National Statistics director of economic statistics Darren Morgan said: “With May’s growth revised down a little and June showing a notable fall, overall the economy shrank slightly in the second quarter.”
He added: “Health was the biggest reason the economy contracted as both the test and trace and vaccine programmes were wound down, while many retailers also had a tough quarter.
Inflation
British Chambers of Commerce head of research David Bharier warned that businesses are also being hit by these growing costs.
“Since 2021, our research has been flagging the damaging impact of inflation, it is wiping out many firms’ profit margins and threatening their long-term growth,” he said.
“Supply constraints caused by global Covid lockdowns and conflict in Ukraine, coupled with soaring energy costs, have created a perfect storm that many small businesses are struggling to weather.”
He added: “That’s why it is becoming critical for the Government to take action as soon as possible. They must immediately cut the VAT on businesses’ fuel bills to 5%. The longer the economy is left to drift towards the danger zone the harder it will be to rectify.”
Truss
Did Liz Truss predict all this back when she was a remainer?