British economy slows in second quarter, sparking recession fears

  • British economy slows in second quarter, sparking recession fears

British economy slows in second quarter, sparking recession fears

It comes as gross domestic product (GDP) decreased by 0.2% between April and June, according to figures released on Friday by the Office for National Statistics (ONS).

The drop in output means the U.K.is in danger of falling into a technical recession with one more quarterly decline.

A sharp drop in the value of the pound against the euro should have started to hit exports from Ireland to the United Kingdom by making them more expensive and there have been warnings from companies as varied as Ryanair and Kerry Group that Brexit would take a toll. He further said the Brexit crisis and the uncertain global outlook left its economy on a "knife-edge" for the upcoming quarter.

He added: 'The reason we are seeing volatility in numbers - higher results in the first quarter, lower in the second quarter - the reason we're seeing this is because businesses are trying to work around Brexit and there's too much uncertainty.

Before the extension request, many firms ratcheted up their inventories to help cushion the likely disruption from Britain crashing out of the European Union on March 29 without a deal. Stock levels fell by 4.4 billion pounds ($5.3 billion), knocking 2.15 percentage points off GDP. Growth of just 1.2% is expected across the year, down from 1.8% and short of expectations. Part of the weakness reflects one-time factors that won't be repeated. The ONS attributed the decline partly to lower vehicle production as annual summer shutdowns for planned maintenance were brought forward to April in anticipation of the last Brexit deadline.

Production output fell by 1.4 per cent, while manufacturing declined by 2.3 per cent.

U.K. Chancellor of the Exchequer Sajid Javid, who has held the post since Johnson's election, dismissed fears of a recession and said he does not "at all" expect growth to decline for a second quarter.

But the figures appear to confirm dire predictions about Brexit.

The UK economy shrank in Q2, the first such occurrence since 2012, with commentators warning that worse could be to come as no-deal Brexit looms. Investors are now pricing in a 25-basis-point reduction in BOE interest rates for January 2020. But, at the moment, the Central Bank of England is refraining of cutting rates, as they fear it might produce a worst-case scenario.

Many investors say a no-deal Brexit would tip Brexit into a recession, weaken London's position as an global financial center and send shock waves through the world economy. "'There's certainly an element of inventory overhang", but surveys suggest "underlying growth is a lot weaker".

A stronger than predicted household spending of 0.5%, thanks to low unemployment and an increase in wage growth. It fell 1.6% from a year earlier.

But with output in the eurozone growing by 0.2 percent in this past quarter, experts are not so sure.