Risk of recession as UK economy shrinks in second quarter

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.

- Latest news

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 31 March increasing demand in the first quarter and widespread car firm shutdowns 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.

This article was first written and published by our sister magazine Moneywise.

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment