UK financial system shrinks in second quarter, sharpening recession worry

The United Kingdom’s financial system shrank within the three months to June, figures launched Friday confirmed — a smaller-than-expected contraction that nonetheless added to jitters concerning the rocky months forward.

The Office for National Statistics mentioned Britain’s gross home product fell by 0.1% between April and June, down from 0.8% development within the earlier quarter. GDP shrank by 0.6% in June, and development estimates for May had been revised down from 0.5% to 0.4%.

The statistics workplace mentioned well being spending was the most important contributor to the autumn, as the federal government scaled down coronavirus testing, contact tracing and vaccination packages.

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

Analysts mentioned the decline didn’t essentially imply the beginning of a recession, typically outlined as two quarters of financial contraction. The Bank of England, nonetheless, says the U.Okay. will probably fall into recession later this yr as a cost-of-living disaster worsens and inflation rises above the present 9.4%.

The common U.Okay. family gas invoice has risen greater than 50% this yr because the conflict in Ukraine squeezes world oil and pure gasoline provides, and one other improve is due in October, when the common’s invoice is forecast to hit 3,500 kilos ($4,300) a yr.

“The fall in U.K. GDP during the second quarter was largely down to noise,” mentioned James Smith, developed markets economist at ING Economics. “But the risk of recession is rising quickly, with gas futures hitting new highs for next winter and our latest estimates suggesting the household energy price cap could come close to 5,000 pounds in the second quarter of next year. Much now depends on fiscal policy announcements in the autumn.”

Anti-poverty campaigners, shopper teams and opposition politicians are urgent Prime Minister Boris Johnson’s Conservative authorities to assist folks address hovering payments. But Johnson is in his closing weeks as prime minister and says “significant fiscal decisions” should be left to his successor, who will take workplace in September.