Economy declines for first time since 2012

Pound to euro dollar exchange rate slumps after UK economy shrinks - Daily Star

Pound to euro dollar exchange rate slumps after UK economy shrinks - Daily Star

The UK economy experienced its worst quarter since 2012 between April and June, according to the country's Office for National Statistics (ONS), feeding fears of recession - two quarters of economic contraction in a row - as the October 31 Brexit deadline approaches.

The decline is set to raise alarm that the economy could experience its first recession in a decade. Most analysts expected the economy to flat-line.

Annual growth in June alone was the weakest since August 2013 at 1pc.

Before the extension was granted, many firms used up warehouse space to help them cushion the likely disruption from Britain crashing out of the European Union on March 29 without a deal. A recession occurs when the economy contracts for two consecutive quarters.

Since then, companies have stopped stockpiling as much.

The decline in GDP was driven by uncertainty over Brexit, as well as shutdowns in the vehicle industryStockpiles of manufactured goods built up earlier this year in anticipation of the first Brexit deadline in March also caused production to decrease in the second quarter.

Production output fell by 1.4 per cent, with manufacturing showing a 2.3 per cent decline.

The fact that the overall economy performed worse than anticipated is likely to increase concern about Brexit's corrosive effect on the economy.

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The UK economy has begun to slow since the referendum vote to leave the European Union in June 2016.

Chris Williamson, chief business economist at IHS Markit, said the data showed "an economy in decline and skirting with recession as headwinds from slower global growth are exacerbated by a Brexit-related paralysis". "Meanwhile, contingency planning activities for a no-deal Brexit are costly and often resource-intensive, reducing scope to lift capital spending".

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Prime Minister Boris Johnson has committed to leaving on Oct 31. with or without a deal, causing the pound to weaken dramatically.

The pound fell sharply on the news, hitting its lowest point against the dollar for nearly 3 years - increasing fears that the economy could slide into a recession.

Finance minister Sajid Javid said the global context was challenging but the fundamentals of the British economy were strong.

The surprising result comes as the United Kingdom economy has endured "particularly volatile" conditions so far in 2019, the Office for National Statistics says, in which businesses struggled first to adapt to the country's planned exit from the European Union in the spring - and then adjusted to new uncertainties as that deadline was extended through October.

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