Money news Economy declines for first time since 2012

13 August, 2019, 17:03 | Author: Regina Silva
  • Pound to euro dollar exchange rate slumps after UK economy shrinks - Daily Star

Gross domestic product fell at a quarterly rate of 0.2% in the three months to June, an unexpectedly severe hangover from a pre-Brexit stockpiling boost in early 2019.

The data, which was worse than market expectations for zero growth, sent the pound sliding against the euro and dollar.

Rehan Ansari, head of FX risk management & derivatives at Caxton FX, said: "Today's figures will mount further pressure on the pound as the market evaluates whether this will warrant an adjustment to monetary policy". It was trading at 1.206 USA dollars by Friday lunchtime, its lowest point since early 2017.

The ONS' chief of GDP, Rob Kent-Smith, says that there has been a fall in manufacturing output.

The fall in GDP was driven by a fall in manufacturing after a strong start to the year, with production brought forward ahead of the UK's original departure date from the EU.

He also revealed that the service sector, usually a strong performer, "delivered virtually no growth at all".

The contraction compares to 0.5% growth in the previous quarter, when the highest quarterly pickup in manufacturing since the 1980s was recorded.

The numbers do contain some distortions that flattered growth in the first quarter, and have depressed it in the second, including stockpiling for a no deal Brexit. What most economists are fearing is another quarterly decline report in the near future, which would spell the end of the long growth period of the country and the start of a technical recession, one that has arrived a quarter earlier than expected.

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The Times reports that the Government has drawn up a list of companies - including some of those in the construction and manufacturing sectors - which it believes could be financially exposed in any volatility following the United Kingdom leaving the European Union without a deal.

Construction output was also weaker, falling by 1.3%.

This compared with a 1.4 per cent increase in the first quarter, with the quarterly decline largely reflecting a six per cent drop in fix and maintenance work. Services sector output provided the only positive contribution to GDP growth, although growth in this sector slowed to 0.1 percent.

Economists had predicted zero per cent growth for the second quarter as opposed to a shrinkage, following 0.5 per cent growth in the first quarter.

With the 31 October deadline fast approaching, it is likely that there will be a No-Deal Brexit as Johnson vows to leave the European Union before the set deadline.

The surprise decline came after Brexit stockpiles were unwound and the vehicle industry implemented shutdowns.

While the entire globe has been facing economic uncertainty, few are going to be going through as much trouble as Britain in the coming months.

The Brexit crisis and the uncertain global outlook left the nation's economy on a "knife-edge" for the third quarter, he added.

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