Britain’s economy shrank 0.1% in the second quarter

Britain’s economy contracted slightly in the second quarter, losing momentum as the country experiences a worsening cost of living crisis and economists predict a recession will begin later this year.

Gross domestic product fell 0.1% from April to June from the previous quarter, when the economy grew 0.8%, the Office for National Statistics reported on Friday. The biggest drag on growth in the second quarter was a reduction in healthcare services as pandemic measures, such as coronavirus testing and vaccine administration, declined. This was only partially offset by growth in consumer-facing services, such as travel agencies, restaurants and hotels, and spending related to the Queen’s Platinum Jubilee.

Britons face a grim combination of stagnant or declining economic growth with one of the highest inflation rates among its wealthy economy peers. In June, inflation climbed to 9.4%, the highest in 40 years, but is not expected to peak until it hits 13% in October. The Bank of England, which has been raising interest rates steadily since December in an effort to limit rapid price increases, predicted last week that the country would enter a long recession at the end of the month. year, from which he would not emerge before the beginning. of 2024.

High inflation is squeezing household budgets and is expected to lead to a sharp drop in consumer spending, normally a major driver of economic growth, while soaring energy prices are also weighing on businesses. Household incomes, adjusted for inflation and taxes, are expected to fall sharply this year and next, in the worst drop on record dating back to the 1960s, the central bank said.

British households in particular are preparing for abnormally high energy bills. In October, when the government price cap is reset, it could be 3,500 pounds ($4,256) a year, three times the amount a year ago. But the effects of high inflation are already noticeable: in the second quarter, consumer spending, once adjusted for price increases, fell by 0.2%.

Warnings of weak growth and high inflation are sounding around the world. The International Monetary Fund said late last month that the world could soon “swing on the brink of a global recession”.

The U.S. economy also contracted in the second quarter, following a decline in the first quarter, sparking debate over whether the country was already in a recession.

The lingering effects of the pandemic and the economic consequences of the Russian invasion of Ukraine are evident in the UK economy. In the second quarter, growth was dampened by a drop in wholesale and retail business activity, with companies reporting they were still hampered by supply chain disruptions and lower retail sales, as people reduced their expenses to meet the rising cost of living.

The National Institute for Economic and Social Research, a London-based think tank, says the UK economy is already in recession. It underscores the scale of the challenge facing candidates for the post of prime minister, in a competition that ends next month. Rishi Sunak, the former Chancellor of the Exchequer, and Liz Truss, the Foreign Secretary, clashed over the best approach to supporting more households, through tax cuts or direct payments, as Britain’s economic outlook is darkening.


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