The chancellor of the exchequer has said he does not expect the UK to fall into recession, despite the latest data from the Office for National Statistics (ONS) showing the first contraction in the economy since 2012.
Official figures showed a surprise 0.2 per cent decline in GDP between April and June, which was attributed to uncertainty surrounding Brexit.
However, Sajid Javid insisted there is “not a single leading forecaster” that is anticipating a recession, which occurs when the economy shrinks for two consecutive quarters.
The ONS said it has been a “particularly volatile” year so far in terms of GDP, which increased by 0.5 per cent between January and March, before the 0.2 per cent downturn recorded in the second quarter.
First-quarter output was boosted by manufacturers stockpiling ahead of the previous anticipated Brexit date of March 29th, which was ultimately pushed back to October 31st. Second-quarter performance was impacted as these stockpiles were run down, and also by a number of car manufacturers bringing forward their annual shutdowns to April.
Rob Kent-Smith, head of GDP at the ONS, acknowledged that manufacturing production had fallen back after a “strong start to the year”, while the often-dominant service sector had shown “virtually no growth at all”.
Despite these concerns, the chancellor told the BBC he is “not expecting a recession at all” and insisted that people should not simply take his word for it.
“There's not a single leading forecaster out there that is expecting a recession; the independent Bank of England is not expecting a recession,” said Javid. “And that's because they know that the fundamentals remain strong.”
The central bank's latest projection is for the UK economy to grow by 1.3 per cent this year, which is a downward revision from the previous forecast of 1.5 per cent.
The business perspective
Business bodies reacted to the contraction in economic activity with concern, although the Confederation of British Industry (CBI) acknowledged that the Q2 results were heavily influenced by one-off factors.
Looking at the wider corporate picture at the moment, the organisation warned that business sentiment is “dire”, owing to slower global growth and Brexit-related uncertainty.
“Securing a Brexit deal before the October 31st deadline is the first step to revving up the economy,” said Alpesh Paleja, CBI lead economist. “The second is refocusing attention on vital domestic priorities – such as pressing ahead with key infrastructure projects – to boost productivity and growth potential over the longer-term.”
The Federation of Small Businesses said the Q2 GDP figures underlined the need for the Treasury to deliver an emergency Brexit Budget before the end of October.
It called for specific measures including a cut in employer national insurance contributions from 13.8 per cent to 12 per cent and an increase in the annual employment allowance from £3,000 to £4,000.
Currency markets felt the effects of the latest GDP results, with the pound – already at two-year lows as a result of the prolonged uncertainty surrounding Britain's exit from the European Union – falling further on the Q2 figures.
The FTSE 100 index experienced challenges of its own on the day of the ONS announcement, closing at 7,253.85 on Friday August 9th, down just over 32 points over the course of the day's trading.
While Brexit is clearly impacting investor and business sentiment, market performance is also being heavily influenced by the ongoing trade war between the US and China, which contributed to US stock index futures dropping on Monday morning.
Trading has also been affected by recent violent protests in Hong Kong, a key financial hub in Asia.
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