// Recession fears build after ONS figures showed the economy’s Q2 is worse than expected
// ONS said the UK’s GDP contracted for the first time in seven years
// BRC’s Kyle Monk: “The UK is now one quarter away from recession”
The BRC is urging the government to “take swift” action to prevent the UK falling into recession, after new figures indicated that GDP contracted for the first time in seven years.
According to the ONS, the UK’s GDP shrank 0.2 per cent in the second quarter and compares to the 0.5 per cent growth in the previous quarter.
The ONS attributed the first quarter growth to companies building up additional goods in anticipation of a March Brexit.
But with the original deadline later called off in favour of an October exit, firms which spent the first three months of the year stockpiling look to have been using up their stores before building up new reserves.
The latest ONS figures marked the first time the country’s GDP – an official measure of economic expansion – has contracted since late 2012.
The economy was also weaker than both market expectations and the Bank of England’s latest forecasts, which had pointed to flat growth in the quarter.
“GDP contracted in the second quarter for the first time since 2012 after robust growth in the first quarter,” ONS head of GDP Rob Kent said.
“Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU.
“The construction sector also weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all.”
Responding to the latest GDP estimates, BRC head of insights Kyle Monk warned that the UK was within reach of falling into recession and it could “put further pressure to already embattled retailers”.
“The UK is now one quarter away from recession and the government must take swift and decisive action,” he said.
Monk said the government needed to provide clarity on the UK’s future trading relationship with the EU, as well as address “imbalances caused by the broken business rate system”.
“The most recent Retail Sales Monitor have shown 12-month average sales falling to their lowest point on record, with both June and July showing record low,” he said.
“Overall, today’s ONS results reflect the tough conditions that retail is facing.”
Meanwhile, Chancellor Sajid Javid said the fundamentals of the British economy were “strong”.
“The government is determined to provide certainty to people and businesses on Brexit – that’s why we are clear that the UK is leaving the EU on 31 October,” he said.
The ONS data dump also showed that the UK’s trade deficit narrowed by £16 billion to £4.3 billion in the quarter, as the level of imported goods declined following sharp rises in the first three months of the year.
Economists said the decline was worse than expected, but not a huge surprise.
Pantheon Macroeconomics chief UK economist Samuel Tombs said it showed that “the underlying economy is sluggish, but it has not stalled”.
Meanwhile, EY Item Club chief economic adviser Howard Archer said the economy should show signs of recovery once Brexit has been finalised.
“On the assumption that the UK does ultimately leave the EU with a ‘deal’ on October 31, we expect an easing of uncertainties to allow economic activity to gradually pick up,” he said.
“Consumer spending should benefit from reasonable fundamentals, although we suspect that real earnings growth in the near term at least may level off while employment growth is expected to be slower.”