UK economy likely to have contracted in second quarter for first time in seven years

Firms cite Brexit uncertainty, global headwinds and pre-Brexit stockpiling as reasons for slowdown

“Dark clouds gather over UK economic outlook,” says economist Cathal Kennedy, predicting a dip in GDP (PA)

The UK economy is likely to have shrunk in the second quarter for the first time in seven years as the last major business survey for the period signalled hardly any signs of life in the dominant service sector.

The poll of service firms known as the PMI dashed hopes that the sector – which accounts for nearly 80 per cent of Britain’s GDP – may have pulled the economy from the brink of contraction, after the PMIs for manufacturing and construction revealed steep falls in output in June.

“The June purchasing managers’ surveys point to the UK economy struggling at the end of a very challenging second quarter following the UK’s delayed exit from the EU,” said Howard Archer, chief economic adviser to the EY ITEM Club.

“This ties in with our view that GDP likely contracted 0.2 per cent quarter-on-quarter in the second quarter.”

Likewise, in a note entitled ‘Dark clouds gather over UK economic outlook’, Cathal Kennedy, European economist at RBC, predicted a fall in GDP between April and June, albeit a smaller one.

First official data on economic output in the second quarter, due on 9 August, will confirm whether these forecasts are correct. If they are, this will be the first quarter of declining GDP since the last three months of 2012.

Purchasing managers across all three sectors cited uncertainty about Brexit as a crucial factor in holding back business.

Both candidates to replace Theresa May as prime minister have kept the option of a no-deal departure firmly on the table – something companies have been warning against for months.

Firms also reported that a slowing global economy dented demand, most directly for Britain’s manufactured goods.

But stockpiling ahead of the original Brexit deadline on 29 March also played a part as any running down of the stocks or even just slower stockpiling in subsequent months would have reduced activity.

Nor can any quick recovery be expected, economists said, noting weak forward-looking measures in the PMI surveys such as new orders.