The UK economy contracted by 0.2% between April and June, the weakest since the fourth quarter of 2012
The UK economy shrank in the second quarter for the first time in seven years, sparking fears of a recession.
Gross domestic product (GDP) fell 0.2% between April and June following a “robust” first quarter of 0.5% growth, according to the Office for National Statistics. On an annual basis economic growth fell to 1.2% from 1.8%.
Following the announcement, the pound fell sharply, after the figures raised fears of a recession. Despite output falling it is not technically a recession until GDP has fallen two quarters in row.
Amid signs of a global slowdown and a trade war between the US and China, economists had expected growth to remain unchanged.
Industrial production shrank by 1.4% in the second quarter. The ONS says this contraction was driven by the stockpiling of goods leading up to the Brexit deadline on March 31 increasing demand in the first quarter and widespread car firm shut-downs in April.
Within production, manufacturing contracted by 2.3%, while construction output dropped by 1.3%.
The services sector, usually the main driver of economic growth, had its weakest quarter in three years, rising by just 0.1%.
Tej Parikh, chief economist at the Institute of Directors, says that with the UK’s exit from the EU looking likely to be determined at the last minute, the economy is facing a “bumpy ride”.
He says: “Contraction in the second quarter is a rude awakening after the growth in the first three months of the year, and confirmation of the concerns businesses have been expressing about the economy."
What is GDP?
Gross domestic product or GDP is the sum of a country’s goods and services produced in the economy and measures the growth of the economy over a period of time.
It is calculated on a quarterly and annual basis. If the figure is higher than the previous three months this means the economy is growing and usually signifies an increase in goods, jobs and wages.
If GDP is falling this means it is getting smaller. Two consecutive quarters of negative growth means the economy is in recession.
The ONS is responsible for calculating the GDP figure for the UK. To collect data, it surveys tens of thousands of UK firms working in manufacturing, services, retail and construction, as well as using a wealth of administrative data.
Uncertain outlook - what you can do
The figures are the first released since Boris Johnson became Prime Minister last month.
The government has said it is operating on the assumption that it will leave the EU with no Brexit deal if an agreement has not been struck with Brussels.
Mr Parikh adds: “While consumers have helped keep the economy afloat, it is increasingly worrying that underlying growth is largely absent. Whatever happens on October 31, the government needs to give business leaders a significant shot in the arm to return investment and productivity growth to the country after a prolonged period of uncertainty.”
While it is impossible to predict whether or not the economy will fall into a full recession, there are things you can do to protect your personal finances against such an inevitability. What you need to think about is too much to cover in the space of one article, however.
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