Gross domestic product, a measure of the amount of goods and services produced, fell 0.1 percent in the second quarter of the year after rising 0.7 percent in the previous quarter. A temporary recovery is expected in the third quarter before the UK slips into recession in the winter as further energy price rises squeeze household incomes and hit spending. The fall was sharper at the end of the quarter, with GDP falling 0.6% in June, but that drop reflects two lost business days from the Queen’s platinum jubilee. The Office for National Statistics, however, said the celebrations had “little impact on quarterly estimates” and the drop in GDP reflected the slowdown in economic growth. Overall, Friday’s data was close to what economists and the Bank of England had expected. Darren Morgan, director of economic statistics at the ONS, said the economy “shrunk slightly” during the quarter with weak health and retail trade partially offset by “growth in hotels, bars, salons and outdoor events across the quarter”. Yael Selfin, UK chief economist at KPMG, said the end of the coronavirus testing and tracing program was instrumental in reducing output in the second quarter and while this was temporary, the weakness could be seen across the economy. “Households are already being hit by rising inflation, which is squeezing real incomes, while rising interest rates are making mortgages less affordable. Ofgem’s expected rise in the utility tariff cap this autumn could be the last straw before the UK enters a consumer-led recession,” he said. The UK economy performed better than the US in the second quarter, but worse than the other G7 economies of Germany, France, Italy and Canada, which have recovered more from the pandemic. Nadhim Zahawi, the chancellor, said: “I know times are tough and people will be worried about rising prices and slowing growth, so I am determined to work with the Bank of England to get it under control inflation and grow the economy.” Some economists were more gloomy and believed that the decline in GDP already signaled the beginning of a recession. Stephen Millard, deputy director of the National Institute for Economic and Social Research, said: “It now appears that the UK economy has entered recession [because] we expect production to continue to decline over the next three quarters.” Details of the second-quarter data showed households are already feeling the pinch, with consumption falling 0.2%, offset by some good news from business investment, which rose 3.8%. Business investment has been volatile in recent quarters and is still 6% below pre-pandemic levels. Trade performance was again weak with another record trade deficit, excluding precious metals. Exports were £27.9 billion lower than imports in this measure, a gap representing 4.5 per cent of national income, the largest since comparable records began in 1997. Much of this shortfall reflects imports of expensive oil and natural gas, but there have also been notable increases in EU vehicle and machinery imports without corresponding increases in exports. On a sectoral basis, the main decline in output in the second quarter was in services, particularly health and retail trade, offset by improvements in services related to the growing travel sector. Manufacturing shrank slightly, as did the North Sea oil and gas sector despite record prices. The data showed the UK economy was 0.6% bigger than it was in the quarter immediately before the pandemic, but significantly smaller than expected, suggesting permanent damage to economic performance.
