The drop in output in the second quarter followed growth of 0.8% in the first quarter and was driven by the health sector – as Covid testing and the vaccine program were completed – and retail trade as household spending eased. Economists had forecast a bigger drop in output of 0.2% in the second quarter. Natural gas and electricity led output to rise in the second quarter and construction also rose, according to figures from the Office for National Statistics (ONS). “Health was the biggest reason why the economy contracted as test and trace and vaccine programs collapsed, while many retailers also had a difficult quarter,” said Darren Morgan, director of economic statistics at the ONS. “These were partly offset by growth in hotels, bars, salons and outdoor events throughout the quarter, partly as a result of people celebrating their platinum jubilee.” The economy shrank by 0.6% month-on-month in June, after growing 0.4% in May, which the ONS said was partly explained by the Queen’s platinum jubilee, which led to an extra working day in May and two fewer business days in June. The Bank of England has forecast a modest recovery in GDP in the third quarter to the end of September ahead of a recession starting in October, which the central bank has predicted will last until 2023. Subscribe to the Business Today daily email or follow Guardian Business on Twitter @BusinessDesk The cost of living crisis, with inflation approaching 13% by the end of the year and energy bills soaring, is expected to weigh heavily on household spending and pile further pressure on businesses already struggling with rising costs. James Smith, director of research at the Resolution Foundation, said: “While the contraction in June partly reflects the timing of the platinum jubilee bank holiday, the economy has started a difficult period on a weak base. And with the Bank of England predicting that inflation will rise to more than 13% in October and that the economy will slip into recession in the fourth quarter, the outlook is bleak. “The first priority for the new prime minister will be to provide further targeted support to low- and middle-income households who will be hit hardest by the stagflation that already appears to be taking hold.”
