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UK economy shrinks for 1st time since 2012

Aug '19
Pic: Shutterstock
Pic: Shutterstock
British economy shrank in the second quarter for the first time since 2012 as uncertainties related to Brexit put pressure on firms, according to official figures. The resulting drop in pound reportedly reflects the market disappointment to the quarterly contraction, which lowered the annual growth rate to 1.2 per cent from 1.8 per cent in the first quarter.

The development has led to speculations that the economy could experience its first recession in a decade. Explaining the fall in the April-June period, the Office for National Statistics noted there was "increased volatility around the UK's original planned exit date from the European Union (EU) in late March."

Brexit was scheduled to occur on March 29 but delayed till October end after parliament rejected the withdrawal agreement that the previous prime minister Theresa May had negotiated with the EU. Many UK firms used up warehouse space before the announcement of the extension to tackle any possible disruption arising out of the United Kingdom leaving the EU on March 29 without a deal.

That stockpiling helped the economy grow by 0.5 per cent in the first quarter. When the extension was granted, there was less need for firms to stockpile. The run-up to the original Brexit date also prompted many car companies to bring forward their annual maintenance shutdowns to April as they concluded that the early weeks of a no-deal Brexit would be the most disruptive.

The combination of these factors led to a 1.4 per cent quarterly decline in the output of production industries, according to British media reports.

Business investment, which has been weak since the country voted in June 2016 to leave the EU, weakened further in the second quarter, contracting by 0.5 per cent.

Most economists think that a no-deal Brexit would lead to a deep recession; even Brexit's most passionate supporters say it would be disruptive in the short-term.

New treasury chief Sajid Javid has accepted that this is a ‘challenging’ period for the global economy, but insisted the fundamentals remain ‘strong’. (DS)

Fibre2Fashion News Desk – India

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