UK Economy Suffers 1st Contraction in Nearly 7 Years

Britain's economy shrank 0.2 percent in the second quarter of 2019, compared to forecasts that had pointed to stagnation and following a 0.5 percent growth in the previous three-month period, a preliminary estimate showed. That was the first quarter of contraction since the last quarter of 2012.
ONS | Joana Ferreira | 8/9/2019 9:48:08 AM
On the production side, industrial output dropped 1.4 percent, the most since the last quarter of 2012, driven by the largest decline in manufacturing since the first quarter of 2009 amid high stock levels and ongoing Brexit uncertainty. The fall in manufacturing output was driven by a 5.2 percent contraction in transport equipment output, which largely reflected the partial closures of various car manufacturing plants. There were also declines in the manufacturing output of pharmaceutical, chemical and metal products. Mining and quarrying output fell 0.4 percent, driven by scheduled maintenance in a number of oil and gas fields. In contrast, electricity, gas, steam and air conditioning as well as water supply and sewerage production grew 2.5 percent and 1 percent respectively.

Services output growth slowed to 0.1 percent, the weakest quarterly figure in three years. There has been an easing in wholesale, retail and motor trades, which slowed to 0.2 percent (vs 1.2 percent in Q1), with all three sectors weakening compared with the first three months of the year. Financial and insurance activities output shrank 0.2 percent, continuing the decline seen since Q1 2017. Transport, storage and communications output was 1 percent higher, in line with the previous quarter due partially to the continued strength in the computer programming sector.

Construction output fell 1.3 percent, following a 1.4 percent advance in Q1, due primarily to a 6 percent decline in repair and maintenance work.

On the expenditure side, gross capital formation (GCF) – which includes gross fixed capital formation (GFCF), changes in inventories and acquisitions less disposal of valuables – made a negative contribution of 4.01 percentage points to overall GDP growth. This decline broadly represents a fall-back from the first quarter, where GCF was boosted by the build-up of stocks held by some businesses ahead of the UK’s original exit date from the European Union at the end of March, alongside notable movements in unspecified goods. Changes in inventories subtracted 2.24 percentage points from GDP growth. The fall-back in changes in inventories follows five consecutive quarters of positive contributions to growth.

GFCF decreased 1 percent (vs 1.2 percent in Q1), mainly reflecting a 2.7 percent fall in government investment. Also, business investment decreased 0.5 percent, driven by declines in investment in buildings and to a lesser extent information and communication technology (ICT) equipment and other machinery and equipment.

Meanwhile, household consumption increased 0.5 percent (vs 0.6 percent in Q1), amid ongoing concerns over the wider economy coupled with falls in personal finance; and government consumption rose 0.7 percent, driven by increases in government spending in a number of sectors, including healthcare and spending by local authorities.

The UK trade deficit narrowed sharply to £4.373 billion from a record £21.582 in the previous period. Exports dropped 3.3 percent (vs 1.5 percent in Q1) while imports plunged 12.9 percent (vs 10.8 percent in Q1).

UK Economy Suffers 1st Contraction in Nearly 7 Years