UK economy shrinks in Q2, heightening recession fears

LONDON — The UK’s economy contracted in the three months to June, figures showed on Friday – a weaker-than-expected contraction that nonetheless added to jitters about the tough months ahead.

The Office for National Statistics said Britain’s gross domestic product fell 0.1% between April and June, compared with growth of 0.8% in the previous quarter. GDP fell 0.6% in June and growth estimates for May have been revised down from 0.5% to 0.4%.

The statistics office said healthcare spending was the main contributor to the fall, as the government cut coronavirus testing, contact tracing and vaccination programmes.

“Many retailers also had a difficult quarter,” said ONS director of economic statistics Darren Morgan. “These were partially offset by growth in hotels, bars, hairdressers and outdoor events in the quarter”, partly following Queen Elizabeth II’s Platinum Jubilee celebrations in June.

Analysts said the drop doesn’t necessarily mean the start of a recession, often defined as two quarters of economic contraction. The Bank of England, however, says the UK is likely to fall into recession later this year as the cost of living crisis deepens and inflation rises above the current 9.4%.

The average UK household fuel bill has risen by more than 50% this year as war in Ukraine cuts global supplies of oil and natural gas, and another rise is expected in October, when the average bill is expected to hit 3 500 pounds ($4,300) per year. .

“The fall in UK GDP in the second quarter was largely due to noise,” said James Smith, developed markets economist at ING Economics. “But the risk of recession is growing rapidly, with gas futures hitting new highs for next winter and our latest estimates suggesting the household energy price ceiling could approach 5,000 pounds in the second quarter of next year Much now depends on fiscal policy announcements in the fall.

Anti-poverty campaigners, consumer groups and opposition politicians are pressuring Prime Minister Boris Johnson’s Conservative government to help people cope with skyrocketing bills. But Johnson is in his final weeks as prime minister and says “important budgetary decisions” must be left to his successor, who takes office in September.

ABC News

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