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UK economy suffers shock 0.2pc contraction pre-Brexitin second quarter

August 09, 2019

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In this file photo taken on September 10, a demonstrator holds a sign that reads "Brexit: is it worth it?" outside the Houses of Parliament in central London. — AFP
In this file photo taken on September 10, a demonstrator holds a sign that reads "Brexit: is it worth it?" outside the Houses of Parliament in central London. — AFP

Britain's economy shrank for the first time since 2012 in the second quarter, an unexpectedly severe hangover from a pre-Brexit stockpiling boost in early 2019 and boding poorly as the country prepares to leave the European Union on Oct 31.

Gross domestic product (GDP) 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. Year-on-year economic growth slid to 1.2pc from 1.8pc in the first quarter, Britain's Office for National Statistics said, its weakest since the start of 2018.

Annual growth in June alone was the weakest since August 2013 at 1pc. With Prime Minister Boris Johnson's government committed to leaving the EU on Oct 31, regardless of whether he can secure a new transition deal to avoid trade disruption, the outlook for the remainder of 2019 is especially uncertain.

The world economy has also slowed due largely to a trade conflict between the United States and China. The Bank of England last week predicted that growth will only stage a limited pick-up to a quarterly rate of 0.3pc during the current quarter, and that growth for the year as a whole will drop to 1.3pc.

Previous data had already shown a collapse in manufacturing output in April as car manufacturers brought forward their annual summer shutdowns to follow the original March 29 Brexit deadline that was postponed to Oct 31. But June manufacturing data was also unexpectedly poor and output for the quarter contracted at the fastest rate since early 2009, when Britain was mired in recession.

“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,” ONS statistician Rob Kent Smith 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.

Britain's economy has slowed since June 2016's vote to leave the EU, with annual growth rates dropping from more than 2pc before the referendum to expand by 1.4pc last year. Friday's data showed business investment contracted 0.5pc in the second quarter of the year versus economists' expectations of a 0.3pc fall.

Household spending, which has been much more resilient than business investment, due to falling unemployment and rising wages, rose 0.5pc on the quarter. Trade figures and its contribution to GDP were distorted erratic flows of non-monetary gold and also showed the effect of businesses building up fewer stocks than in the first quarter of the year when they were readying for Brexit.