A fruit stall displays fruit at a market in London, Wednesday, Aug. 7, 2019. The U.K. food industry is asking the government to set aside competition rules so companies can coordinate supply decisions to combat shortages in the event Britain leaves the European Union without an agreement on future trade relations. (AP Photo/Kirsty Wigglesworth)
business

UK economy shrinks for first time since 2012 as Brexit bites

19 Comments
By PAN PYLAS

The British economy unexpectedly shrank in the second quarter for the first time since 2012 as Brexit uncertainties heaped pressure on firms, official figures showed Friday.

The decline is set to raise alarm that the economy could experience its first recession in a decade. Traders in currency markets appeared to reflect that concern, sending the pound down across the board, including to another 2-1/2 year low against the dollar of $1.2065.

The drop illustrates the market disappointment to the quarterly contraction, which lowered the annual growth rate to 1.2% from 1.8% in the first quarter. Most analysts expected the economy to flat-line.

In seeking to explain the fall in the April-June period, the Office for National Statistics noted there was "increased volatility around the UK's original planned exit date from the European Union in late March."

Brexit was meant to happen on March 29, but was delayed to the end of October after Parliament rejected the withdrawal agreement that the previous prime minister, Theresa May, had negotiated with the EU.

Before the extension was granted, many firms used up warehouse space to help them cushion the likely disruption from Britain crashing out of the EU on March 29 without a deal. That stockpiling boon helped the economy grow by 0.5% in the first quarter. When the extension was granted, there was less need for firms to stockpile.

The run-up to the original Brexit date also prompted many car companies to bring forward their annual maintenance shutdowns to April as they concluded that the early weeks of a no-deal Brexit would be the most disruptive.

The combination of these Brexit-related developments led to a sharp 1.4% quarterly decline in the output of production industries.

The fact that the overall economy performed worse than anticipated is likely to increase concern about Brexit's corrosive effect on the economy. Business investment, which has been historically weak since the country voted in June 2016 to leave the EU, weakened further in the second quarter, contracting by 0.5%.

"Brexit uncertainty, and to a lesser extent, weaker global demand, has reduced firms' appetites to expand," said James Smith, an economist at ING bank. "Meanwhile, contingency planning activities for a no-deal Brexit are costly and often resource-intensive, reducing scope to lift capital spending."

May's successor, Boris Johnson, has insisted that Britain will leave the EU on Halloween come what may. Johnson is demanding the bloc renegotiate the deal it struck with May's government, something that EU leaders are refusing to do.

That has stoked fears that Britain will leave the EU without a deal, which would see tariffs and other restrictions imposed on traded goods.

Most economists think that a no-deal Brexit would lead to a deep recession; even Brexit's most passionate supporters say it would be disruptive in the short-term. The Bank of England has indicated there is a one-in-three chance of a recession early next year even if a smooth Brexit is negotiated.

John McDonnell, economy spokesman for the opposition Labour Party, blamed the government's "Brexit bungling" for "tumbling business investment and stagnating productivity."

Sajid Javid, Britain's new Treasury chief, conceded that this is a "challenging" period for the global economy, but insisted the fundamentals remained "strong."

"Wages are growing, employment is at a record high and we're forecast to grow faster than Germany, Italy and Japan this year," he said. "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."

The British economy is not expected to fall into recession — commonly identified as two quarters of economic contraction — just yet as car manufacturers will be operating in August, having brought forward their maintenance period earlier in the year. And with all the talk of a no-deal Brexit again, firms could start to build up their stocks again. Friday's figures also showed that British consumers remain upbeat as wages are rising solidly.

However, Brexit uncertainty looks like it will get more acute in September, when Parliament returns from its summer recess and the political debate and maneuvering around a no-deal Brexit intensifies. Opposition lawmakers are likely to try to bring down the government with a no-confidence vote in an attempt to avert a no-deal Brexit.

With so much in flux, business investment could take a further hit and consumers may also opt for caution as Halloween looms.

Add in worries over the global economy as a result of the trade conflict between the United States and China, and it's clear there are lots of ghouls and ghosts about.

© Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

©2019 GPlusMedia Inc.


19 Comments
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Yesterday I purchased a pair of Harley Davidson boots from a US supplier (online)

When I initiated the transaction, the previous night, the price was $240. 00, i.e. £104.00; owing to glitch on my system, payment didn't go through. The following morning (yesterday) my equivalent in Pounds had already risen from the initial £104.00 to £110.00.

This is what Brexit is doing to the value of the Pound. Very soon it will be as valuable as the Deutsche Mark was at the end of the War.

Brought to you, courtesy of Tangerine, news.com

-1 ( +3 / -4 )

"Wages are growing, employment is at a record high and we're forecast to grow faster than Germany, Italy and Japan this year," he said. "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."

Brexiteers, delusional, as well as perennial liars:

"Brexit knocks Britain back in economic race with euro zone"

"The surprise contraction in Britain’s GDP means it is now trailing behind the euro zone, including Spain and Italy.

The UK economy shrank by 0.2 per cent in the second quarter, while output in the area using the euro rose 0.2 per cent. Spain’s GDP was 0.5 per cent higher than in the first three months of the year and Italy’s was flat."

https://www.independent.co.uk/news/business/news/brexit-uk-economy-gdp-euro-zone-spain-italy-a9050461.html

God help Blighty.

1 ( +3 / -2 )

@Peeping_Tom

The UK will see a major boom very soon!

The cheap pound is attractive for all those buying UK exports,services and tourism.

More Brits will holiday in the UK.

If you have t diversified your finances ie you don’t hold yen, gold or any other protective asset then I suggest you do your research.

On a personal note, I export high end Japanese products and have seen a 30% rise in the pound value paid for my products! This is hardly a sign of a moribund economy.

BTW even though those boots became more expensive, you still bought them right?

-3 ( +2 / -5 )

1000 yen is now GBP 7.75. Going the other way, 127.5 to the pound.

I think the UK is doing genuine self-harm. I base this on what business (CBI) and senior civil servants say, not politicians. I don't particularly care whether the UK is a member of the EU, but abandoning free trade with it and expecting bountiful trade with places much further away, including Trump's USA, is madness. Chucking away freedom of movement is also a betrayal of the life chances of young British people, my own children included.

1 ( +2 / -1 )

@Peeping_Tom

If you are talking about US dollers, with no glitch on your system, $240 at the exchange rate on the day you mentioned would have cost around £197. (£1=$1.216)

So, you managed to get the boots £87 cheaper than they were supposed to be, but your complaining that they were not £91 cheaper because of Brexit?

Seems to be me that you got a bargain, but your looking for an excuse to moan. I'd be happy with the discount you got in the first place.

0 ( +2 / -2 )

The UK will see a major boom very soon!

The cheap pound is attractive for all those buying UK exports,services and tourism.

That doesn't in any way guarantee a boom. It makes it more likely that there are gains in some areas, but those can be offset or exceeded in scale by far worse performance in others.

Leaving aside the regulatory chaos that can be expected if a no-deal is rammed through, it's not going to be a simple matter of exports being cheaper and more attractive to customers; many companies and manufacturers are heavily reliant on the seamless trade and regulation they had with other EU countries for the products they export, whether those products are exported to Europe or not. This is why the future of every major car manufacturing plant in the UK is shaky.

A weaker pound will also increase the costs of imported goods, which for many is going to increase the costs of doing business, and is going to hit customers (the ordinary British public) very hard - the country has many problems, but wage inflation isn't one of them. Some companies will simply move as much as they can of their operation back behind EU borders; others, especially smaller companies, will go out of business altogether.

3 ( +3 / -0 )

So, Brexiteers, it's all going to plan then?

3 ( +4 / -1 )

"The UK will see a major boom very soon!

The cheap pound is attractive for all those buying UK exports,services and tourism."

Really?

Explain this then? Not "my news".

"UK trade deficit widens as fall in sterling fails to improve export sales"

https://www.theguardian.com/business/2017/aug/10/uk-trade-deficit-widens-as-fall-in-sterling-fails-to-improve-export-sales

2 ( +4 / -2 )

"If you are talking about US dollers, with no glitch on your system, $240 at the exchange rate on the day you mentioned would have cost around £197. (£1=$1.216)"

Sometimes your reasoning is quite baffling!!!

Of course $ dollars have nothing to do with glitches on my system; I live in London, remember?

And you need to re-do your calculations; I KNOW WHAT I PAID! And it cost more, not less. In Pounds, in case you're not sure what currency we're talking about here.

And I ended up paying MORE, just the day after my intended "bargain", due to the fall of the Pound!

If I had made my purchase yesterday, it would have cost even more.

The Pound is falling and Brexiteers are talking about paying more as a bargain!

Brexit will fun to watch!

0 ( +3 / -3 )

@Peeping_Tom

why aren’t you buying your boots in the UK?

Oh, and give the weak pound time to have an effect!

For the same reason I am not selling my gold at the moment is most likely the reason other countries are not buying UK services- they are waiting to get more value for money-the pound will fall more.

What does Guardian reporting have to do with the real world when the UK has a healthy fiscal balance sheet and a rising population?

Watching Brexit is not an option for me;I will be too busy taking advantage of the trading opportunities to be watching!

-2 ( +1 / -3 )

The UK has a great future!

-2 ( +1 / -3 )

As a previous electrician I could be earning 1000 pound/week. 50,000 pa without too much effort. That does not include all the side perks.

0 ( +0 / -0 )

@Peeping_tom

Of course $ dollars have nothing to do with glitches on my system; I live in London, remember?

When I initiated the transaction, the previous night, the price was $240. 00, i.e. £104.00; owing to glitch on my system, payment didn't go through. The following morning (yesterday) my equivalent in Pounds had already risen from the initial £104.00 to £110.00.

Hang on, hang on.

In what universe is $240 equal to £104? Did you go back in time to 1996?

And I ended up paying MORE, just the day after my intended "bargain", due to the fall of the Pound!

You ended up paying £110, when the boots should have worked out at £197. You're annoyed that you didn't get the boots at £104. So, your whole beef is about the £6?

Are you Scottish?

-2 ( +2 / -4 )

Tangerine, Tangerine,

The Pound is FALLING; it fell against the Euro and the Dollar.

So, in your world, when a currency falls against the other(s) it goes up in value?!

Regardless of the exchange rate, something that cost $20.00 WILL COST MORE Pounds to buy it!!!

If today $20,00 equals £20,00 and the Pound FALLS, it will no longer be $20.00 equals £20.00!!! It will be e.g. $20,00 equals £23.00 Pounds.

It will take more of a fallen currency to by another against which it has fallen.

Economics nbr. 1.

Capisce.

1 ( +3 / -2 )

@Tangerine,

Sorry, I owe you an APOLOGY; UNRESERVED.

I made an honest mistake with my figures; I was working and typing to you simultaneously.

Bad choice.

However, as I was not getting what you're getting at, I went and checked both my receipt and mssg to you:

I paid £210.00, NOT £110.00.

Had I paid the day before the price in Pounds would have been £204 (or there about).

That was an honest mistake that you spotted, ignored and tried to be clever.

If the Pound value has gone down, there was no way I would have made a saving.

You're correct in that I quoted the wrong figures; I "Correctissimo" in that devaluation of the Pound is making everything dearer.

Food prices are increasing and the quantities inside each package getting smaller; pensioners (I suspect you're one of them) will be the first one's to scream. Soon enough.

-2 ( +2 / -4 )

There is little doubt that the value of sterling has been affected by the Brexit political and economic uncertainty and the incompetence of Theresa May government.

However Brexit is only part of the overall picture. There is a real danger that the the US, China trade conflicts could spark a currency war.

Note France and Germany forecasts......

France GDP Annual Growth Rate

https://tradingeconomics.com/france/gdp-growth-annual

Germany GDP Growth Rate......

https://tradingeconomics.com/germany/gdp-growth

-1 ( +1 / -2 )

I'd be annoyed with myself if I was buying something and it went up 3% overnight. That's just for shopping. A 3% rise overnight in one of the costs of doing business would be big for many companies.

There was an article the other day saying that one of the largest travel agencies doesn't hedge, so there must be plenty of companies in plenty of fields not doing it.

1 ( +1 / -0 )

I love how people who don't live in the UK think that a falling pound, a widening trade deficit and the imminent break with our biggest trading partner is great for the UK.

0 ( +1 / -1 )

Brexit may still not even happen, and what then ?

Apparently even the Queen is a bit frustrated about the Politicians not being able to agree upon anything.

0 ( +0 / -0 )

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