Months before Brexit, UK economy shrinks in Q2
YoY economic growth slid to 1.2% from 1.8% in the first quarter
Britain’s economy shrank for the first time since 2012 in the second quarter, a severe hangover from a pre-Brexit stockpiling boost in early 2019 and one that bodes poorly as PM Boris Johnson gears up to leave the European Union (EU) in October.
Sterling fell and British stocks sold off after data showed output in the world’s Number 5 economy fell at a quarterly rate of 0.2 per cent in the three months to June, below all forecasts in a Reuters poll of economists that had pointed to a flat reading.
With Johnson’s government committed to leaving the EU on October 31, regardless of whether he can secure a transition deal to avoid trade disruption, the outlook for the remainder of 2019 is uncertain.
The world economy has also slowed due largely to a trade dispute between the United States and China. Year-on-year economic growth slid to 1.2 per cent from 1.8 per cent in the first quarter, Britain’s Office for
National Statistics said, its weakest since the start of 2018.
“There is ... little doubt that the economy is stalling, regardless of the volatility in the data,” PwC senior economist Mike Jakeman said.
He said the Brexit crisis and the uncertain global outlook left Britain’s economy on a “knifeedge” for the third quarter.
Annual growth in June alone was the weakest since August 2013 at 1.0 per cent.
The Bank of England last week predicted that growth will only stage a limited pick-up to a quarterly rate of 0.3 per cent during the current quarter, and that growth for the year as a whole will drop to 1.3 per cent.
It also warned of a 1-in-3 chance that output in annual terms will contract in the coming quarters.
“The Bank of England has
retained its tightening bias but any continued economic weakness will mean policymakers are likely to take an increasingly dovish stance,” Chris Williamson, chief business economist at IHS Markit, said.
Private-sector business surveys have shown the manufacturing and construction sectors both contracted in July, while the larger services sector eked out only modest growth.