LONDON : The British economy shrank in the second quarter for the first time since 2012 as Brexit uncertainties weighed on business investment and firms reduced their stockpiling after Britain’s departure from the European Union was postponed, official figures showed Friday.
The decline is set to raise alarm that Brexit uncertainty is increasingly weighing on the economy. Most economists expected the economy to flat-line. The quarterly drop lowered the annual rate of growth to 1.2% from 1.8% in the first quarter.
The Office for National Statistics noted there was “increased volatility around the U.K.’s original planned exit date from the European Union in late March.”
Brexit was meant to happen on March 29, but was delayed to the end of October after Parliament rejected the withdrawal agreement that the previous prime minister, Theresa May, had negotiated with the EU.
The British economy is not expected to fall into recession — commonly identified as two quarters of economic contraction — in the third quarter partly because the car manufacturers will be operating in August, having brought forward their maintenance period earlier in the year. Also Friday’s figures showed that British consumers remains upbeat as unemployment is at 44-year lows and wages are rising solidly and outpacing inflation.
However, Brexit uncertainty looks like it will get more acute in September, when Parliament returns from its summer recess and the political debate and maneuvering around a no-deal Brexit intensifies.
Add in worries over the global economy as a result of the trade conflict between the United States and China, and the economic headwinds are mounting. The Bank of England warned last week that there’s a one-in-three chance that Britain will slip into recession in the early part of 2020 even if a Brexit ends up being smooth.