Britain’s economy contracted by 0.1% in the three months to June, according to official figures that revealed the weakening outlook for the UK, which is expected to enter a recession later this year.
The dip in output in the second quarter followed 0.8% growth in the first quarter and was driven by the health sector – as Covid testing and the vaccine program was wound down – and by retail, as household spending fell. Economists had forecast a bigger fall in output of 0.2% in the second quarter.
Gas and electricity drove an increase in production output in the second quarter, and construction also rose, according to the figures from the Office for National Statistics (ONS).
“Health was the biggest reason the economy contracted as the test-and-trace and vaccine programs were wound down, while many retailers also had a tough quarter,” said Darren Morgan, a director of economic statistics at the ONS.
“These were partially offset by growth in hotels, bars, hairdressers and outdoor events across the quarter, partly as a result of people celebrating the platinum jubilee.”
The economy shrank by 0.6% month on month in June, after 0.4% growth in May, which the ONS said was explained partly by the Queen’s platinum jubilee, which led to an additional working day in May and two fewer working days in June.
The Bank of England has forecast a modest bounceback in GDP in the third quarter to the end of September before a recession beginning in October that the central bank has predicted will last through 2023.
The cost of living crisis, as inflation heads towards 13% by the end of the year and energy bills soar, is expected to weigh heavily on household spending and pile further pressure on businesses that are already struggling with rising costs.
James Smith, a research director at the Resolution Foundation, said: “While the contraction in June partly reflects the timing of platinum jubilee bank holidays, the economy has started a difficult period on a weak footing. And with the Bank of England forecasting that inflation will rise to over 13% in October, and that the economy will slip into recession in Q4, the outlook is bleak.
“The first priority for the new prime minister will be to provide further targeted support to low- and middle-income households who will be worst affected by the stagflation that already seems to be taking hold.”