U.K. economy unexpectedly shrinks for first time since 2012
- 09 August 2019
The U.K. economy shrank for the first time in more than six years in the second quarter, delivering a blow to newly installed Prime Minister Boris Johnson, APA reports citing Bloomberg.
Gross domestic product fell 0.2% following a solid 0.5% advance in the previous three months, the Office for National Statistics said on Friday. Economists had expected output to be unchanged. In June alone, the economy stagnated. The pound fell after the report, sliding to $1.2096 as of 9:32 a.m. in London.
The abrupt loss of momentum came as many firms ran down inventories built up ahead of the original March 29 deadline to leave the European Union. Stock levels fell by 4.4 billion pounds ($5.3 billion), knocking 2.15 percentage points off GDP.
The economy was also hit by auto factories bringing forward summer maintenance shutdowns to April to avoid the threat of supply disruptions around the original Brexit deadline.
Manufacturing, which enjoyed a bumper first quarter, shrank 2.3% in the following three months, the most since 2009.
The GDP figures are the first since Johnson became premier last month, vowing to take Britain out of the EU on the new deadline of Oct. 31, with or without a deal to cushion the blow.
While a modest recovery is forecast in the third quarter, the underlying pace of growth appears to be slowing in the face of heightened Brexit uncertainty and a world economy edging close toward its first recession in a decade. Another quarter of contraction would push Britain into a technical recession.
Johnson is pledging a fiscal stimulus to help the economy cope with Brexit and a no-deal split could see the Bank of England cut interest rates, joining the international shift towards monetary easing.