The British economy shrank unexpectedly by 0.2 percent in the second quarter. This is the first quarterly contraction since 2012, as figures from the British statistics agency show. According to experts, this means a disappointment for the newly appointed British Prime Minister Boris Johnson. The exchange rate of the British pound showed a dip after the news on Friday morning.
Economists had not seen the decline coming. They generally assumed a stabilization of the British economy. The United Kingdom clearly suffers from the Brexit problems. They cause a lot of uncertainty and that is getting in the way of the economy. In the first quarter growth was still 0.5 percent.
What plays a role is that many companies, in order to be well prepared, had built up substantial stocks prior to the original brexit deadline in March. This led to growth in the first months of the year. When the British departure from the European Union was subsequently postponed, stocks were rapidly being phased out. That brought a big bite out of the British gross domestic product (GDP).
The economy was also hit by car factories that brought out their usual summer maintenance. By planning them as early as April, they hoped to prevent the threat of supply interruptions around the original Brexit deadline.
British industry eventually contracted by more than 2 percent. That is the strongest decline in around ten years. Household consumption did rise somewhat, helped by low unemployment and wage increases. In contrast, the economy did not receive support from the services sector. Trade also declined.
In the meantime, the Brexit continues to create uncertainty. The British government urged the leaders of the European Union last weekend to renegotiate the Brexit agreement because “political reality” would have changed. Prime Minister Johnson, who succeeded May at the end of July, states that he wants to leave the European Union on 31 October, with or without an agreement with Europe.