France economy

Struggling UK economy weathers Jubilee turmoil but recession looms

  • Queen’s Jubilee holidays hit UK GDP in June
  • Production falls 0.6% in June against forecasts for a fall of 1.3%
  • UK’s Zahawi says data shows resilience, economists see recession

LONDON, Aug 12 (Reuters) – Britain’s economy contracted less than expected in June, as public holidays were expected to exert a big drag, although sectors most at risk from a worsening cost crisis life, such as retail and restaurants, have struggled.

Output for the second quarter as a whole contracted further, however, as Britain was set to enter a long recession at the end of the year in the face of soaring inflation and rising interest rates. .

The Office for National Statistics said gross domestic product (GDP) fell 0.6% in June, the biggest contraction since January 2021 but less severe than the 1.3% decline predicted by a Reuters poll of of economists.

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The month exceptionally contained two public holidays to celebrate Queen Elizabeth’s Platinum Jubilee, but most of the slowdown in GDP in June came from the shutdown of coronavirus-related health services.

“It’s impossible to say whether this reflects a weaker-than-usual blow from Jubilee, or evidence that the economy has considerable underlying momentum,” said Samuel Tombs, an economist at consultancy Pantheon Macroeconomics.

Either way, he said, GDP should rebound in July.

Friday’s data highlighted growing weakness in consumer-facing sectors of the economy as Britons face inflation hitting a 40-year high following the war in Ukraine.

The economy was estimated to be 0.9% above its pre-COVID level in February 2020, but output of consumer services was 4.9% lower.

Soldiers march past Buckingham Palace during the Platinum Jubilee Pageant, marking the end of celebrations for Britain’s Queen Elizabeth Platinum Jubilee, in London, Britain June 5. Frank Augstein/Pool via REUTERS

Finance Minister Nadhim Zahawi said the figures indicated “real resilience” in the private sector, but many economists expect a slide into recession.

Last week the Bank of England predicted Britain would enter recession at the end of 2022 and not emerge until early 2024 as it raises interest rates to fight inflation, which it expects to exceed 13% in October. Read more

For the second quarter as a whole, the ONS said the economy contracted by 0.1%, against forecasts for a decline of 0.3%.

Britain has lagged the United States, Italy and France in recovering from the COVID-19 pandemic, comparing economic output in the second quarter to that at the end of 2019. Germany, however, was less successful.

Economic recoveries after the COVID pandemic

“The UK economy is approaching recession and the worst is yet to come,” said Suren Thiru, economics director at the Institute of Chartered Accountants for England and Wales.

Separate data from the ONS showed Britain’s goods trade deficit swelled in June to £22.85billion, a three-month high, as exports to the European Union and the rest of the world tightened. were cooling.

“All in all, the trade data is grim and will worsen further over the next few months, leaving the pound even more vulnerable than usual to any reduction in the willingness of overseas investors to provide the funding needed to support this excessive consumption,” Tombs from Pantheon said.

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Reporting by Andy Bruce, William James, Farouq Suleiman and Kate Holton; Editing by Toby Chopra

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