In the second quarter of the year, the economy contracted by 0.1%, according to the Office of National Statistics (ONS).
The United Kingdom’s GDP contracted between April and June as experts predicted a bleak future and impending recession.
This was partially due to the conclusion of Covid programs like Test and Trace, declining retail sales, and the Queen’s Platinum Jubilee bank holiday in June, the report stated.
The Bank of England has predicted that the United Kingdom would enter a recession by the end of the year due to soaring energy prices.
Despite contracting between April and June, the British economy escaped recession since it expanded by 0.8% in the first quarter of this year.
A recession is defined as two consecutive three-month periods of economic contraction.
The majority of analysts and the Bank of England had previously predicted that a recession would not occur until the final three months of 2022.
Many anticipated a modest recovery in economic expansion between July and September. However, the most recent ONS data has caused some experts to warn that a recession may occur sooner than previously anticipated.
According to the National Institute of Economic and Social Research, the British economy will continue to decline over the following three quarters.
Capital Economics reported that the probability of a 0.2% economic contraction between July and September has increased.
However, investment bank Goldman Sachs forecasts a 0.4% increase for the third quarter of 2022. A representative stated, “We had previously anticipated a robust comeback in July, but now anticipate a more subdued rebound.”
Kingdom Thenga, which owns several bars and restaurants in Chester, believes the United Kingdom is already experiencing a recession.
“I believe we are not too far away from it due to the continual hits we’re receiving from energy bills, from people not going out, and from the rising expense of life,” he said.
He states that his company is currently “in survival mode.”
It’s not about earning money, it’s not about expanding or growing our business, it’s just about stabilizing the firm, especially after the pandemic of the last two years,” he told.
Mr. Thenga cites rising costs, with the price of everything from chicken to vegetable oil on the rise, while his clients’ disposable income decreases.
“Energy bills are crazy, and the cost of fuel is ridiculous,” he says. “I understand why people don’t have the money or can’t spend as much as they used to since everyone is so anxious about their upcoming expenditures.”
As energy prices continue to surge, the United Kingdom is seeing the highest inflation rate in forty years.
Shrinking
The largest contributor to the 0.1% decline between April and June, as Covid test and trace and immunization programs were tapered down, was “human health and social work activities,” according to the ONS. Additionally, retail sales volumes declined.
However, sectors such as tourism, bars, and entertainment witnessed significant expansion.
“Health was the primary reason the economy contracted since both the test and trace and vaccine programs were shut down,” said Darren Morgan, director of economic statistics at the ONS. “Many retailers also had a difficult quarter.”
“These declines were slightly offset by growth in hotels, pubs, hair salons, and outdoor events across the quarter, in part due to the Platinum Jubilee celebrations.” This included increases in mobile food stands and meal delivery services.
The ONS reported that the extra bank holiday to honor the Queen’s Platinum Jubilee caused a 0.6% decrease in the economy in June alone.
Nevertheless, this result was far better than the 1.3% decline expected by economists. The ONS reported that although the bank holiday affected the monthly GDP, it had a “minimal effect” on the quarterly figure.
The Chancellor, Nadhim Zahawi, told that the current period is “difficult.”
“Today’s data indicate that the decrease is partially attributable to a reduction in Covid activities, as well as real resilience in the private sector, which bodes well in many aspects… Nevertheless, these are hard times,” he said.
However, Labour accused the Conservatives of “losing economic control.”
Shadow Chancellor Rachel Reeves stated, “With the Bank of England predicting a full year of recession, the Conservative leadership candidates must stop playing to the gallery and come up with a genuine strategy to bring the British economy back on track.
The Platinum Jubilee contributed significantly to the decline in GDP in June, as it resulted in two fewer working days of manufacturing goods and services compared to May, which had one additional working day.
It was always anticipated that this would exacerbate the decline from May to June, and experts anticipated a steeper decline in economic activity.
The 0.1% decline from April to June was hardly half as terrible as some economists anticipated.
Nonetheless, given the global squeeze on earnings caused by skyrocketing energy prices, no one can claim that this decline in activity is only a blip.
Activity in consumer-facing services is 4.9% lower than it was before the epidemic, strengthening its hold on the already-squeezed consumer.
And with France, Italy, and Canada seeing economic expansion, no one can claim that this is a spectacular economic performance.
Overall, it is not yet the recession predicted by the Bank of England, but rather a prelude.
