UK GDP Falls Slightly In Q2

The UK economy logged only a marginal contraction in the second quarter despite the challenges posed by the rising interest rates and high inflation that is squeezing real income.

Gross domestic product shrank 0.1 percent from the first quarter, when output had advanced 0.8 percent, the Office for National Statistics said Friday. Nonetheless, the pace of contraction was slower than the 0.2 percent drop expected by economists.

The Bank of England had projected the economy to enter recession later this year and to contract throughout next year. The bank estimated a quarterly fall of 0.4 percent in the third quarter of 2022.

Today’s 0.1 percent fall in GDP data is yet another signal that the UK economy is moving in an alarming direction, David Bharier, Head of Research at the British Chambers of Commerce, said.

Still the level of quarterly GDP is 0.6 percent above its pre-coronavirus level, ONS said.

Year-on-year, the economy expanded 2.9 percent in the second quarter, slightly faster than the economists’ forecast of 2.8 percent.

Monthly estimates showed that GDP declined less-than-expected 0.6 percent in June, reversing the revised 0.4 percent expansion in May. Economists had forecast a faster decline of 1.2 percent.

With the largest negative contribution from human health and social work activities, services output fell 0.4 percent in the second quarter.

Industrial production gained 0.5 percent, a slowdown compared with the previous quarter, when output gained 1.3 percent. A 0.3 percent fall in mining and quarrying was offset by the 2.9 percent rise in water supply and sewerage and the 2.7 percent increase in electricity and gas. Manufacturing growth remained flat.

Meanwhile, construction output advanced 2.3 percent despite a monthly fall in June. The 1.8 percent growth in May and the weakness in the first quarter due to the storms in February took the latest quarterly rise the biggest since the second quarter of 2021.

On the expenditure-side, household spending slid 0.2 percent in the second quarter, reflecting by falls in net tourism, clothing and footwear and food and non-alcoholic beverages. At the same time, government consumption dropped notably by 2.9 percent.
Driven by the 3.8 percent increase in business investment, gross fixed capital formation grew 0.6 percent.

The trade balance was negative 4.7 percent of nominal GDP in the second quarter.
Excluding the alignment adjustment, inventories rose by GBP 1.9 billion in the second quarter, following a large increase in the previous quarter.

Another report from the ONS showed that the visible trade deficit widened to GBP 22.84 billion from GBP 20.66 billion in May. Exports decreased markedly by 8.0 percent, while imports dropped only 1.0 percent.

The total trade balance showed a shortfall of GBP 11.38 billion compared to a GBP 9.11 billion deficit in the previous month.

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