Britain's GDP shrank 0.2% in April-June

The pound fell sharply against the dollar after UK GDP was announced

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.

Why is the economy shrinking?

The British economy is not expected to fall into recession - commonly identified as two quarters of economic contraction - just yet as auto manufacturers will be operating in August, having brought forward their maintenance period earlier in the year.

Many auto companies also brought forward their annual maintenance shutdowns to April from later in the year to cushion the potential blow from Britain leaving the European Union without a deal on March 29. And with numerous vehicle factories that shut down around the original Brexit deadline expected to soon be starting up again, that could deliver a boost to growth.

Private-sector business surveys have shown that the manufacturing and construction sectors both contracted last month, while larger services sector eked out only modest growth.

Britain's economy shrank at a quarterly rate of 0.2%, the first contraction since 2012 and below all forecasts in a Reuters poll.

Companies had been building up additional goods in the first quarter in anticipation of a March Brexit.

This figure though is set to be the worst in the G7.

Chancellor Sajid Javid said he is "not expecting" there to be a recession. That's lower than what experts had expected (they had forecast growth to be flat). Friday's figures also showed that British consumers remain upbeat as wages are rising solidly.

The Bank said earlier this month it expects the economy to grow by 1.3% this year, down from a previous projection of 1.5% in May.

He said: "No one will be surprised by today's figures".

The UK economy is not alone in seeing shrinkage at this time.


British Prime Minister Boris Johnson replaced Theresa May in July after winning the governing Conservatives' leadership contest on a pledge to take Britain out of the bloc with or without a divorce deal on October 31.

The surprising result comes as the United Kingdom economy has endured "particularly volatile" conditions so far in 2019, the Office for National Statistics says, in which businesses struggled first to adapt to the country's planned exit from the European Union in the spring - and then adjusted to new uncertainties as that deadline was extended through October.

Alpesh Paleja, lead economist at the Confederation for British Industry lobby group, also highlighted stockpiling and the automotive shutdown as the culpable factors.

He added: 'The reason we are seeing volatility in numbers - higher results in the first quarter, lower in the second quarter - the reason we're seeing this is because businesses are trying to work around Brexit and there's too much uncertainty.

"Time is of the essence".

Its chair of policy and advocacy, Martin McTague, said that "Unless the chancellor steps in imminently with radical action, we could be heading for a chaotic autumn and a very long winter".

"Brexit uncertainty, and to a lesser extent, weaker global demand, has reduced firms' appetites to expand", said James Smith, an economist at ING bank.

Household spending rose 0.5% on the quarter.

What has happened to the pound?

Pound Sterling hit over 2-year low on Friday on an unexpected contraction in UK's economy reported the same day.

The currency also falls if there are expectations that interest rates will be cut.

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