UK Economy Shrinks For First Time Since 2012

UK Economy Shrinks For First Time Since 2012

The UK economy is shrinking for the first time in nearly seven years. Brexit could send it into a recession, CNN reported.

Prime Minister Boris Johnson has committed to leaving the bloc on October 31 even without an exit agreement in place to protect trade. That would plunge the economy into recession, according to government forecasts.

GDP for the three months ended June contracted 0.2% compared to the previous quarter, the Office for National Statistics said Friday. Experts had expected growth to be flat.

The contraction comes as the global economy slows and fears rise that Britain could crash out of the European Union, dealing a gut punch to an already-weak economy.

The pound fell 0.6% against the dollar on Friday below $1.21, marking a decline of about 5% since the beginning of July. It dropped 0.7% against the euro.

Uncertainty over Brexit helped drag down the UK economy last quarter. Companies unwound stockpiles that they’d built up ahead of an earlier Brexit deadline at the end of March. Shutdowns at car plants that were timed to coincide with the deadline also held back growth.

The largest drag came from a drop in manufacturing output, which caused the production sector to shrink 1.4%.

Weakness in other parts of the economy added to the environment of uncertainty.

“The often-dominant service sector delivered virtually no growth at all,” said Rob Kent Smith, head of national accounts at the Office for National Statistics.

Additionally, business investment continues to trend downward. It’s not clear that will improve as companies pump more resources into planning for a messy Brexit, CNN commented.

“Contraction in the second quarter is a rude awakening,” said Tej Parikh, chief economist at the Institute of Directors, a business lobby. “While consumers have helped keep the economy afloat, it is increasingly worrying that underlying growth is largely absent.”

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Tamara Kuzmanovic

Writer and journalist for Serbian, Swiss, Japanese and Singapore media since 1996. A former correspondent from the United Nations in Geneva. Based in the Serbian capital Belgrade I've also lived in Switzerland for 12 years. Graduated from College for marketing communication with a degree in advertising, English and public relations. My father was a Serbian MP and Belgrade University professor.

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