UK economy contracted in second quarter amid cost of living crisis – business live

Please do remember: this is not a technical recession (yet)!

Economists generally count two successive quarters of contraction as a recession. So if activity is declining again in the current quarter then it would qualify.

The Bank of England thinks the worst is ahead, as energy price rises begin to bite properly.

It should be remembered that the GDP reading is not quite as bad as economists had expected.

A poll of economists earlier in the week suggested there could be a 0.2% decline.

But one group who will be grimacing looking at today’s reading is the Bank of England, who did not expect a contraction in the UK economy to start until the final three months of 2022.

You can see how economic activity has peaked (at least temporarily) in the below chart from the ONS.

Nadhim Zahawi, the chancellor (for now, at least) is quick out of the blocks with a comment. He said:

Our economy showed incredible resilience following the pandemic and I am confident we can pull through these global challenges again.

I know that times are tough and people will be concerned about rising prices and slowing growth, and that’s why I’m determined to work with the Bank of England to get inflation under control and grow the economy.

The government is providing billions of pounds of help for households with rising costs, including £1,200 for eight million of the most vulnerable households.

The big contributors to the fall in activity included a 0.4% decline in the UK’s dominant services sector, in which activity slumped because of the end of many of the pandemic-related services such as test-and-trace.

There was a 0.2% decrease in real household consumption in the second quarter, the ONS said – a sign that people are feeling the financial pinch.

And of course we already know that inflation is here, but the GDP figures confirm that. The implied GDP deflator (an adjustment for inflation) rose by 6.0% year-on-year in the quarter, “primarily reflecting the 7.3% increase in the price of household consumption expenditure”.

That is the fastest annual household deflator growth rate since 1991, the ONS said.

UK GDP fell by 0.6% in June, but it isn’t quite as bad as it sounds.

Two things we need to take into account: the Queen’s Platinum Jubilee and the move of the May bank holiday led to an additional working day in May 2022 and two fewer working days in June 2022.

The ONS cautions that although this impacted on monthly GDP, there was little impact on the quarterly estimates.

UK GDP fell 0.1% in second quarter