General

According to a report by the US website on August 12, the British economy shrank in the second quarter as British households cut spending in the face of soaring inflation and the economic stimulus plan under the epidemic was gradually withdrawn. That heralds tough times for an economy expected to be in a prolonged recession.

Gross domestic product fell 0.1% in the three months to June, Britain's statistics agency said on Friday. Economists had expected economic output to fall by 0.2% after expanding by 0.8% in the first quarter.

While slightly better than expected, the figures provided a new piece of evidence that the UK economy is struggling under the weight of soaring gas bills and rising interest rates. The fears were further exacerbated after the Bank of England announced the UK would enter a prolonged recession in the final quarter of the year.

The figures offered little consolation for British families and the two MPs vying for the prime minister's seat, the report said. Johnson's successor will take over a struggling economy with a new prime minister facing high inflation once in decades, a tight job market and an energy crisis.

Economists say that while many industrialized countries are struggling to support economic growth, the UK is particularly vulnerable. Like the US, the UK faces high inflation and labour shortages. But the UK is far more affected by the supply shock from rising gas prices. Brexit has led to a drop in trade and a reduction in the number of migrant workers, who are usually employed in low-wage jobs.

The Bank of England said last week that Britain will enter a recession in the last quarter of the year and won't emerge from it until early 2024 — a recession that is as long as during the 2008 financial crisis, but not as sharp. Inflation is also expected to accelerate, peaking at around 13% in October. Last week, the Bank of England raised interest rates by half a percentage point, the largest rate hike in 25 years.

While the Bank of England expects the U.K. economy to rebound in the third quarter before entering a recession, Friday's data could signal an earlier recession, said Ruth Gregory, senior economist at Capital Economics. . She expects the UK economy to shrink further this quarter. A recession is usually defined as two consecutive quarters of negative growth.

"We do think the upcoming recession will be modest by past standards, but given that the main driver is inflation, the pain of the recession will be felt more deeply by households," she said.

According to a report by the U.S. market watch website on August 12, the data in the United Kingdom does not necessarily indicate that the economy is heading for a recession. The Platinum Jubilee in June weighed on output, with GDP contracting 0.6% for the month.

Analysts also cited an unusual drag from Covid-19, as the winding-up of vaccination and testing programmes reduced activity in health and social work.

Samuel Toomes, chief UK economist at Pantheon Macroeconomics Research, said: "The extent of the damage caused by the Platinum Jubilee is uncertain, which means we will have to wait for August's GDP figures to accurately assess the economy. The underlying momentum. Regardless of the value, the latest business survey results show that the recovery has slowed and may stall in the coming months.”

The UK is facing a cost of living crisis as energy costs rise sharply, reports say. Outgoing Prime Minister Boris Johnson said after a meeting with energy company executives on the 11th that it would be up to the next government to decide how to handle the matter.