"UK GDP fell by 0.1% in the second quarter, which was slightly better than the 0.2% forecast by economists, but a marked slowdown from the 0.8% growth seen in the first quarter."
UK GDP fell by 0.1% in the second quarter, which was slightly better than the 0.2% forecast by economists, but a marked slowdown from the 0.8% growth seen in the first quarter.
The decline in June was partly exacerbated by May’s growth of 0.4% on the back of Jubilee bank holiday celebrations.
In addition, ervices fell by 0.5% in June, and was the main driver of the fall in GDP. A decline in human health activities was the largest contributor as test and trace activity reduced further and vaccinations continued to tail off, following the spring booster campaign.
Production fell by 0.9% in June 2022, following an increase of 1.3% in May. This was mainly because of a fall of 1.6% in manufacturing following strong growth in May.
Construction also fell by 1.4% in June 2022, following seven consecutive months of growth.
Samuel Fuller, director of Financial Markets Online, commented: “The UK economy slammed on the brakes in the second quarter, not helped by war, inflation and extra holidays. GDP may have beaten expectations by a whisker but, having flipped into reverse, that’s not going to count for very much. There may be good reasons for this readout but the stop-start recovery is still a grim reality with recession bearing down.
“Andrew Bailey has set such poor expectations for the UK economy over the next 18 months, recession is a foregone conclusion and the risk is it ends up being deeper than it needs to be. Businesses everywhere will now be planning their hiring and investment strategy around a pretty torrid 2023. That’s been putting the pound under pressure even as expectations have risen that the Fed will tighten more slowly and Bank of England interest rates will continue to rise.
“With the US already in technical recession the UK’s in good company and it’s still very unlikely the UK will post a second consecutive contraction in Q3.
“However, with inflation predictions of over 13% by the start of the fourth quarter, it’s going to continue to be bumpy from here. The inflation fight is top billing and the economy is just going to be dragged along with it.”
George Lagarias, chief economist at Mazars, said: British economic output continues to slow down as pressures pile on consumers. With inflation over 8%, many UK households have been in 'recession' long before the official numbers can confirm it. Higher rates, higher prices and more taxes are suppressing consumption and sentiment. Yet, we are still far from the point where central banks would stop aggressive tightening. We expect economic pressures to worsen in the near future, at least until prices begin to materially de-escalate and the BoE feels comfortable dialling back interest rates."
Alice Haine, personal finance analyst at Bestinvest, added: “A GDP contraction in the second quarter was always on the cards as the economy - battered by the cost-of-living crisis and the wider global challenges posed by the war in Ukraine - heads towards a recession at the end of the year.
“While a decline of 0.6% in June was lower than expected, it was exacerbated by May’s surprise expansion of 0.4% on the back of the celebrations around the extra Jubilee bank holiday. Despite May’s positive GDP figure, the economy still contracted marginally by 0.1% across the second quarter.
“While the withdrawal of the NHS Test and Trave Covid-19 vaccination services was one of the main drivers behind the contraction, the hit to household finances from runaway inflation as energy and food prices spiralled upwards and fuel also hit record highs in the April to June period must be factored in too.
“Earlier this month, the Bank of England dramatically downgraded its economic outlook as it increased interest rates by the largest margin in 27 years and forecast that inflation will peak at 13.3% by the end of this year, with annual price gains still hovering around the 10% mark in a year's time.
“The big shock, however, was the Central Bank’s year-long recession forecast, with no growth expected for almost two years and unemployment expected to increase from its current 3.8% level by two thirds.
“While the downbeat outlook reflected the ongoing war in Ukraine and cuts in gas supply to Europe, what the BoE could not factor into its assessment was the effect of any tax cuts brought in by whoever wins the Conservative Party leadership race.
“With a warning this week from energy consultancy Auxilione that Ofgem could be forced to set the energy price cap at £5,038 per year for the average household in the three months beginning next April, whoever takes the helm will need to act fast if they want to prevent the economy from tanking any further.
“Throw higher interest rates, higher mortgage payments and lower savings into the mix and the winter months look increasingly bleak. Hopefully a new leader can deliver some fiscal cheer in time for Christmas to ensure the year ends on a slightly more upbeat note.”
