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Is the UK three months away from recession?

Figures released by the UK Office of National Statistics show UK gross domestic product (GDP) falling by 0.2% in Q2 (April to June) 2019, having grown by 0.5% in the first quarter of the year.Year-on-year UK GDP increased by 1.2% in Q2 2019; a slowing from 1.8% in Q1 2019. The services sector provided the only positive contribution to GDP growth, albeit growth in this sector slowed to 0.1% in Q2.

The contraction in GDP growth in Q2 is the first quarterly slowdown in seven years. However, ACCA chief economist Michael Taylor does not believe the country is facing the threat of recession (two consecutive quarters of negative growth). He said: “On the face of it this first contraction in GDP in almost seven years is a surprise.  But the fall in output in the second quarter is largely due to the impact of the scheduled date of 29 March for the UK to leave the EU.

“Some manufacturers, especially carmakers, brought forward their annual shutdowns to April rather than the summer and this contributed to a large drop in manufacturing output in the second quarter. In addition, stocks built up in anticipation of a March EU exit were likely run down in the second quarter, dragging growth down further. There is likely to be a rebound in activity in the third quarter and so we do not expect the UK to enter recession, despite fears of this being expressed.

“But economic confidence has been dented here in the UK, as our last Q2 edition of our Global Economic Conditions Survey (GECS) showed. The message from the GECS continues to be moderate growth, restrained by stagnant business investment spending held back by Brexit uncertainty. Consumer spending, supported by rising real incomes, will help support modest economic growth in coming months.

“As for the global economy, GECS points to a slowing global economy with significant downside risks reflected in weak confidence. The biggest risk to the global economy remains a significant further escalation in the US-China trade war. A sharp slowdown in China and a no deal Brexit are additional downside risks.”

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