By John Ikani
Britain’s economy contracted by 0.1% in the April-June period, official data showed Friday, as the country heads towards recession under a new prime minister.
Exports fell and consumer spending contracted to push the UK closer to a long period of contraction that the Bank of England expects will stretch to the end of 2023.
“With May’s growth revised down a little and June showing a notable fall, overall the economy shrank slightly in the second quarter,” said Darren Morgan, Director of Economic Statistics of the Office for National Statistics (ONS).
The dip in output in the second quarter followed 0.8% growth in the first quarter and was driven by the health sector – as Covid testing and the vaccine programme was wound down – and by retail, as household spending fell, according to the ONS.
It went on to add that gross domestic product (GDP) fell by 0.6% in June, the biggest contraction since January 2021 but less severe than the 1.3% drop predicted by economists.
Last week the Bank of England predicted Britain would enter a recession at the end of 2022 and not emerge until early 2024 as it raised interest rates to battle inflation, which it said was likely to exceed 13% in October.
Britain has lagged behind the United States, Italy and France in recovering from the COVID-19 pandemic, comparing second quarter economic output against late 2019. Germany, however, has fared worse.
“The UK economy is sliding closer to recession and the worst is yet to come,” said Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales.
Following Friday’s data, finance minister Nadhim Zahawi said he was “determined to work with the Bank of England to get inflation under control and grow the economy”.
But Prime Minister Boris Johnson will not make “major fiscal interventions” before leaving office next month, his spokesman said on Monday amid calls for immediate government action to tackle Britain’s cost-of-living crisis.
Johnson, who last month announced he would step down on September 6 following a slew of scandals, is set to hand power to either Liz Truss or Rishi Sunak after a summer-long Conservative leadership battle.
Foreign Secretary Truss and Sunak — Zahawi’s predecessor as chancellor of the exchequer — have clashed over how to address the crisis.
Truss plans an emergency budget to lower taxes and to review the independent BoE’s inflation-fighting mandate.
But Sunak said tax cuts financed with more borrowing would force the bank to increase interest rates even more, insisting on the need to maintain fiscal rigour and tame the price pressures first.