Raging inflation is taking a toll on British households which are forced to cut spending. The UK economy shrinks in the second three months of the year as the country’s cost-of-living crisis deepens.
The UK economy contracted in the three months to June, dropping 0.1% as soaring inflation slowed spending activity, according to data revealed by the Office for National Statistics on Friday.
The decline followed a drop of 0.8% in the first quarter of 2022. Monthly estimates revealed that that GDP fell by 0.6% in June, following a 0.4% increase in May.
The latest data pointed to growing weakness among consumer-facing sectors of the economy as Brits have to deal with inflation reaching a 40-year high. Inflation hit 9.4% in July, and is projected to continue rising through to autumn.
The ONS reported a 0.2% fall in household consumption in the second quarter, offset by a positive contribution from net trade.
The Bank of England warned last week that it expects the UK economy to enter its longest recession later this year since the 2008 global financial crisis. Meanwhile, inflation is projected to peak above 13% in October.
“The UK economy is sliding closer to recession and the worst is yet to come,” Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales, told Reuters.
Last week the Bank of England predicted Britain would enter a recession at the end of 2022 and not emerge until early 2024 as it raised interest rates to battle inflation, which it said was likely to exceed 13% in October. read more
For the second quarter as a whole, the ONS said the economy contracted by 0.1%, compared with forecasts for a 0.3% drop.
Britain has lagged behind the United States, Italy and France in recovering from the COVID-19 pandemic, comparing second quarter economic output against late 2019. Germany, however, has fared worse.
“The UK economy is sliding closer to recession and the worst is yet to come,” said Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales.
Separate ONS data showed Britain’s goods trade deficit swelled in June to 22.85 billion pounds, a three-month high, as exports to the European Union and the rest of the world cooled.
“All told, the trade data are grim, and will worsen further over the coming months, leaving sterling even more vulnerable than usual to any reduction in the willingness of overseas investors to supply the finance needed to sustain this excessive consumption,” Tombs from Pantheon said.