The UK economy shrank in the past 2 months, as experts predicted a bleak future with a possible recession.
According to the Office for National Statistics (ONS), the economy contracted by 0.1% in the second quarter of this year.
This was due in part to the end of Covid schemes such as Test and Trace, a drop in retail sales, and the Queen’s Platinum Jubilee bank holiday in June, according to the report.
As energy prices rise, the Bank of England predicts that the UK will enter a recession by the end of the year.
Despite contracting between April and June, the UK economy avoided recession because GDP increased by 0.8% in the first three months of this year.
A recession is defined as the economy contracting for two consecutive three-month periods.
Until now, most economists and the Bank of England expected a recession to start in the final three months of 2022.
Many people predicted that economic growth would pick up between July and September. However, the latest ONS figures have prompted some experts to warn that a recession may be on the way sooner than previously anticipated.
According to the National Institute of Economic and Social Research, the UK economy will continue to contract over the next three quarters.
According to Capital Economics, the economy is now more likely to contract by 0.2% between July and September before worsening.
However, investment bank Goldman Sachs predicts 0.4% growth in the third quarter of 2022. “We had previously got a sharp bounce back in July, but now expect a more muted rebound,” a spokesperson said.
HSBC’s forecast was more upbeat, saying, “If the UK is going into recession, we don’t think this is the beginning of it.”
“We continue to expect a bounce back in July – the reversal of the bank holiday effect – to set the UK up for a positive Q3,” it added.
As energy prices continue to rise, the UK is experiencing the worst rate of price rises – or inflation – in 40 years.
The ONS stated that the 0.1% contraction between April and June was primarily due to “human health and social work activities” as Covid test and trace and vaccination programs were phased out. Retail sales volumes decreased as well.
However, it stated that sectors such as tourism, bars, and entertainment had experienced rapid growth.
“The biggest reason the economy contracted was health, as both the test and trace and vaccine programs were wound down, and many retailers also had a difficult quarter,” said Darren Morgan, director of economic statistics at the ONS.
There wes partially offset by growth in hotels, bars, hairdressers, and outdoor events throughout the quarter, which was partly due to people celebrating the Platinum Jubilee.” This included an increase in the number of mobile food stands and takeaway food shops.
According to the ONS, the economy shrank by 0.6% in June alone due to the extra bank holiday to commemorate the Queen’s Platinum Jubilee.
However, this figure was significantly lower than the 1.3% drop predicted by economists. According to the ONS, while the bank holiday had an impact on monthly GDP, it had “little impact” on quarterly GDP.
Nadhim Zahawi, the Chancellor, told the BBC that these are “testing times.”
“What the numbers show today, the contraction is partly due to some of the Covid activities being reduced, but also to real resilience in the private sector, which actually bodes well in many ways… But these are challenging times,” he said.
Labour, on the other hand, accused the Conservatives of “losing control of the economy.”
Bank of England forecast a recession lasting the entire year next year, the Conservative leadership contenders need to stop playing to the gallery and start coming up with a serious plan to get Britain’s economy back on track,” said Shadow Chancellor Rachel Reeves.
The Platinum Jubilee resulted in two fewer working days of producing goods and services in June, compared to one extra working day in May, which contributed significantly to the drop in GDP.
The downturn from May to June was always expected to be exacerbated, and economists predicted a sharper drop in activity.
The 0.1% drop from April to June was only half as bad as some economists predicted.
Nonetheless, given the global squeeze on incomes caused by soaring energy prices, no one can dismiss this drop in activity as a blip.
The squeeze on the consumer is tightening, with consumer-facing service activity down 4.9% from before the pandemic.
And, with growth in France, Italy, and Canada, no one can claim that this is a stellar economic performance
