Recession fears after worst GDP performance in six-and-a-half years

GDP in the UK fell by 0.02% in the second quarter of 2019 – the first quarterly contraction since the fourth quarter of 2012.

Economists had predicted growth to flatline at 0%.

GDP is the sum of the value of goods and services produced in the economy.

Business investment has again slumped after a brief recovery in the first quarter, with the aftershocks of Brexit stockpiling in Q1 being felt in the second quarter.

These latest figures merely confirm that Brexit uncertainty will continue to pose more problems for the UK economy as it drags on, and raises fears that the country could potentially be on the cusp of a technical recession.

A recession is generally considered to be two consecutive quarters of lower GDP.

David Cheetham, chief market analyst at online trading firm XTB, said: “This marks the first time in over six years that we’ve had a quarterly contraction in economic activity and, given the growing threat of a no-deal Brexit that looms menacingly overhead, it would not be at all surprising if the current quarter also shows a contraction – therefore meeting the standard definition of a recession with consecutive drops in quarterly GDP.

“The solid first quarter growth of 0.5% owes a lot to companies stockpiling ahead of the 29th March Brexit deadline that never came and it’s pretty obvious that economic activity is clearly slowing.”

The Pound fell on the latest GDP figures. At 9am it was worth $1.2132, but by 9.40 it had slipped to $1.2103, before recovering slightly to $1.2117 around 10am.

Richard Perry, an analyst at Hantec Markets, said: “The Pound is flatlining against the US Dollar, but it will probably eventually go lower in time.”

Andy Scott, associate sirector at JCRA, added: “Sterling is already trading at its lowest levels for two years against both the US Dollar and the Euro, having fallen by 8% since May due to markets re-pricing in a hard-Brexit.

“If the economy slips into recession, alongside the risk of a hard-Brexit and a general election, Sterling will likely suffer further losses.

“The currency continues to be the bellwether of what the market expects the outcome of Brexit to be, as well as a measure of political risk.

“We continue to advise clients to prepare for the worst – sharp moves in both directions – while hoping that pragmatism prevails and avoids a disorderly exit that will hurt both sides.”

Tej Parikh, chief economist at the Institute of Directors, said: “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.”

Speaking to the Guardian, he added: “With the nature of the UK’s exit from the EU looking likely to be determined at the 11th hour, the economy is facing a bumpy ride going into the third quarter. Another round of stockpiling is complicated by preparations for Christmas and by firms’ previous experience of spending money to no avail.

“While consumers have helped keep the economy afloat, it is increasingly worrying that underlying growth is largely absent. Whatever happens on 31 October, 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.”

TUC general secretary, Frances O’Grady, said: “Negative growth at home and weaker growth around the world is a major worry for workers and business.

“The Prime Minister’s toxic threat to crash out of the EU without a deal only adds to the alarm. It damages confidence in the economy, putting people’s jobs at risk.

“No responsible leader would contemplate inflicting such a crisis on the nation.

“The Government should protect us from the current dangers by taking no-deal off the table and giving our economy urgent support through investment in public services.”

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