UK plc in the red for the first time since 2012 after 0.2% contraction

Sterling fell to its lowest level in more than two-and a-half years today as the British economy went into the red for first time since 2012. 

UK plc shrank by 0.2 per cent over the three months to June, according to official statistics that confounded economists who had expected it to flatline.

The worse-than-anticipated figures will fuel fears of a full-blown recession – which technically means two consecutive quarters of contraction – and heap pressure on Boris Johnson over Brexit. 

This afternoon Sterling hit 1.2074 dollars, passing the 31-month low it reached on August 1 and down from 1.2138 dollars last night, before recovering slightly. Against the euro, the pound sank to a new two-year low of 90.70 pence. 

It means that already badly-hit holidaymakers setting off on holiday abroad face getting even less spending money for the pounds in their pockets.

Businesses have been blaming uncertainty over the UK’s future ties to the EU for a slowdown.  

It comes after growth accelerated to 0.5 per cent in the first quarter, driven by the highest quarterly pick-up in manufacturing since the 1980s as the original Brexit deadline loomed.

With the UK’s departure from the bloc now rescheduled for October, companies which spent the first three months of the year stockpiling are thought to have been using up their stores.

Manufacturing and construction activity also reduced to cause the drop.

Chancellor Sajid Javid pointed to weakening across other major economies, saying it was a ‘challenging’ time.

‘This is a challenging period across the global economy, with growth slowing in many countries. ‘

‘But the fundamentals of the British economy are strong – wages are growing, employment is at a record high and we’re forecast to grow faster than Germany, Italy and Japan this year.’

He said the government was ‘determined to provide certainty to people and businesses on Brexit – that’s why we are clear that the UK is leaving the EU on 31 October’. 

The Office for National Statistics (ONS) head of GDP Rob Kent Smith said: ‘GDP contracted in the second quarter for the first time since 2012 after robust growth in the first quarter. 

‘Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU.

‘The construction sector also weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all.

‘The trade deficit narrowed markedly, as imports fell following a sharp rise in the first quarter ahead of the UK’s original departure date from the EU.’ 

Economist predictions had been in line with the Bank of England’s forecasts, after it confirmed last week that it expected GDP to be zero in the second quarter.

The Bank upped its UK growth outlook to 2.1 per cent in 2021, but that could now be revised. 

Production output fell by 1.4 per cent in the second quarter, with manufacturing showing a 2.3 per cent decline.

The sector was also weighed down by a drop in transport equipment, which was 5.2 per cent lower due to annual car factory closures being brought forward from summer to April, as companies planned for possible Brexit disruption.

Construction output was also weaker, falling by 1.3 per cent.

This compared with a 1.4 per cent increase in the first quarter, with the quarterly decline largely reflecting a 6 per cent drop in repair and maintenance work.

The services sector, which is usually the main driver of Britain’s economic growth, had its weakest quarter for three years, climbing 0.1 per cent.

In comparison with the same quarter a year ago, GDP was up 1.2 per cent.