UK Economy Shrinks for First Time in Seven Years

Sajid Javid

The UK economy shrank in size between April and June 2019, the first fall since 2012. The news came as a surprise to the markets and if a second quarterly fall is confirmed later in the year then the UK economy would technically be in a recession.

Sajid Javid, the Chancellor of the Exchequer,  rejected any notion of a second quarterly fall, saying:

“I am not expecting a recession at all. And in fact, don’t take my word for it. There’s not a single leading forecaster out there that is expecting a recession, the independent Bank of England is not expecting a recession. And that’s because they know that the fundamentals remain strong.”

John McDonnell, the Shadow Chancellor of the Exchequer, said:

“Today’s dismal economic figures are a direct result of Tory incompetence. The Tories’ Brexit bungling, including Boris Johnson now taking us towards no-deal, is breaking the economy. The Tories are responsible for tumbling business investment and stagnating productivity – and that, along with nine years of austerity, has contributed to GDP contracting today.”

Bank of England Cuts UK Growth Forecast

The Bank of England has cut the growth forecasts for the UK economy to 1.3% this year, from the previous figure of 1.5%. The bank warned that Brexit was causing an negative impact on the economy and was leading to “a marked depreciation of the sterling exchange rate”.

The bank’s report also noted:

“Brexit-related developments, such as stockbuilding ahead of previous deadlines, are making UK data volatile. After growing by 0.5% in 2019 Q1, GDP is expected to have been flat in Q2, slightly weaker than anticipated in May. Looking through recent volatility, underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade.”

Business Secretary Responds to Jaguar Land Rover Cuts

Greg Clark, the Secretary of State for Business, Energy and Industrial Strategy has said that the decision of Jaguar Land Rover to cut 4,500 jobs “will clearly be a worrying time for Jaguar Land Rover employees and their families”. The company has recently confirmed that sales in China have fallen and that Brexit has created a climate of uncertainty.

In a statement, Clark said:

“Jaguar Land Rover have today confirmed plans to offer voluntary redundancy packages to their UK workforce as they reduce their global headcount. This is a commercial decision for the company but nevertheless it will clearly be a worrying time for Jaguar Land Rover employees and their families.

Jaguar Land Rover is a much valued British company with a talented and dedicated workforce. The Government has, and will continue, to work closely with the business to ensure that it can succeed long into the future as it invests and transitions to autonomous, connected and electric vehicles. On Monday, Andy Street, Mayor of the West Midlands Combined Authority, and I will convene a Jaguar Land Rover Development Partnership meeting bringing together Jaguar Land Rover leadership, local MPs and representatives from the Midlands and the North West, supply chain, trade body and trades union representatives.

Jaguar Land Rover and its owners have made clear they remain firmly committed to the UK, continuing to invest billions and employing tens of thousands of people. This includes today’s announcement of investment in next generation electric drive units to be produced in Wolverhampton and a new battery assembly centre in Hams Hall. Building on last year’s investment in their key plants in Solihull and Halewood to build the next-generation of Land Rover models, including electric vehicles.

The UK is a world-leader in automotive manufacturing. Through our modern Industrial Strategy, we are building on those world beating strengths and investing in the future to put the UK at the forefront of the next generation of electric and autonomous vehicles.”

Jack Dromey, the Labour MP for Birmingham Erdington, said:

“Areas like mine, of high poverty and unemployment… It’s nothing short of tragic that tonight there will be workers at home wondering what their future holds.”

UK Quarter Growth Increases by Just 0.1%

The Office for the National Statistics, the ONS, has said that UK growth increased by only 0.1% over the last quarter, increasing fears that Brexit has caused damage to the economy.

The ONS said:

“The preliminary estimate of gross domestic product (GDP) shows that the UK economy grew by 0.1% in Quarter 1 (Jan to Mar) 2018, the weakest quarterly growth since Quarter 4 (Oct to Dec) 2012. The weak growth in Quarter 1 2018 was driven by a sharp fall in construction output and a sluggish manufacturing sector, while growth in services also slowed. Today’s figures suggest that the overall impact from the recent snow and adverse weather conditions across the UK was relatively small”.

A spokesperson for the Prime Minister said that the figures were “disapppointing”.

John McDonnell, the Shadow Chancellor of the Exchequer, said:

“It’s clear to everyone except Philip Hammond that our economy is in need of increased investment and working families are struggling with the cost of living and the burden of increasing household debt”.

OECD Warns of Damage to British Economy if Close Ties to EU Aren’t Maintained

The OECD has warned that the British economy faces long-term decline if it doesn’t maintain close ties to the European Union. It also said in a report that the British economy be boosted if the Government reversed its Brexit decision.

Angel Gurría, the Secretary General of the OECD, said in a speech:

“The UK’s preparation for Brexit in 2019 is creating big uncertainties, and will continue to weigh on the economy, at least until those uncertainties are resolved. It will be crucial that the UK and the EU maintain the closest economic relationship possible. This applies to the trade of goods and services, but also to the movement of labour, from which the UK has benefitted so much”.

The OECD added:

“The recent OECD economic survey recommends that the UK authorities secure the closest possible economic relationship with the European Union in its future trading arrangement. Rapidly concluding negotiations to guarantee the rights of EU citizens is a priority to sustain labour supply and ensure further progress in living standards. The United Kingdom should adopt simple criteria to deal with EU citizens living and/or working in the United Kingdom, which would minimise administrative burdens and avoid that some categories of EU citizens fall into the cracks, such as cross-border workers”.

A spokesperson for Theresa May, the Prime Minister, said:

“The OECD are a respected international body but what we should bear in mind is that it’s based on a no-deal situation, which is not what we are looking for. We are confident we are going to strike a good deal”.

ONS Warn of “Notable Slowdown” in Latest GDP Figures

The ONS has warned that there has been a “notable slowdown” in the economy following the publication of the second quarter GDP figures. The UK economy has grown by 0.3% between April to June 2017, but construction and manufacturing growth is negative compared to the previous quarter.

Darren Morgan from the ONS said:

“The economy has experienced a notable slowdown in the first half of this year. While services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth”.

Philip Hammond, the Chancellor of the Exchequer, welcomed the economic growth but added:

“We need to focus on restoring productivity growth to deliver higher wages and living standards for people across the country”.

John McDonnell, the Shadow Chancellor, said in a statement:

“Growth for the first half of 2017 is below expectations, and it follows continued data showing working families are being squeezed with wages not keeping up with prices. The truth is that the Tories’ austerity cuts have undermined working people’s living standards and weakened the UK economy”.

The data summary is available at the ONS web-site.

UK Growth Forecasts Downgraded by the IMF

The International Monetary Fund (IMF) has today downgraded the 2017 growth forecast for the UK from its previous 2% growth down to 1.7%. The IMF also confirmed that the UK had the slowest economic growth of any major economy in the first quarter of 2017.

Markus Kuger,  economist at Dun & Bradstreet, said:

“The IMF’s downgrade reflects the undercurrent of political and economic uncertainty in the UK, as the impact of Brexit on the economy remains unclear. The first quarter of the year saw a mediocre economic performance and Dun & Bradstreet rates the level of risk in the UK as ‘deteriorating’.

The slow progress of Brexit negotiations is creating considerable unpredictability for businesses operating in and with the UK. This has only been intensified by the results of the general election in June, as the government’s narrow parliamentary majority is further complicating the process of leaving the EU”.

Growth Slowed Slightly in First Quarter

ons

GDP has slowed slightly in the first quarter of 2016 with growth of 0.4% compared to 0.6% in the previous quarter. This gives an annual growth rate of 2.1% and remains in line with expectations.

There was an increase of 0.6% in the service sector, but a fall of 0.4% in production and a fall of 0.9% in construction. The full results are available at the ONS’s web-site.

Joe Grice, the Chief Economist at the ONS, said:

“Today’s figures suggest growth has slowed as compared with the pace up to the middle of last year. Services continue to underpin the economy but other sectors have shown falling output this quarter”.

George Osborne warns about threats to the economy

gosborne

George Osborne, the Chancellor of the Exchequer, has warned about potential threats to the economy. In a speech made in Cardiff he said “I worry about a creeping complacency in the national debate about our economy”.

The Chancellor warned of global pressures which could cause problems for the UK economy, saying:

“Last year was the worst for global growth since the crash and this year opens with a dangerous cocktail of new threats from around the world”.

He also warned of other threats such as increasing interest rates and falling oil rates.

John McDonnell, the Shadow Chancellor of the Exchequer, said that Osborne was “getting his excuses in early” and said that Labour had been warning for months about the challenges of the global economy.

2015 Budget Key Measures and Responses

gosborne

The full text of the budget speech can be found here.

George Osborne, the Chancellor of the Exchequer, has unveiled the 2015 budget today which is the last before the General Election.

In his speech he said that the UK had enjoyed the fastest level of growth of any G7 country and that debt is continuing to fall as a share of GDP. Key measures introduced include an increase in the personal tax allowance to £11,000 in April 2017 and a new personal savings allowance.

There will also be increased funding of £1.25 billion for mental health care services for children and for the third year beer duty has been cut by 1p with a 2% cut on spirits and most ciders. Charities will also be able to claim gift aid on more smaller transactions, the bank levy will be increased and there will also be a new tax on some companies who trade in the UK but don’t pay any corporation tax.

Ed Balls, the Shadow Chancellor, said that the Conservatives had failed to balance the books which they said they’d do in 2010 and that the Government was borrowing £207 billion more than it had planned. The Labour party also said that it would further cap social security and allow for more homes to be built to help tackle the housing crisis.

Danny Alexander, the Chief Secretary to the Treasury, said that the Liberal Democrats had been key in ensuring that the Government increased the basic rate tax allowance and also in the increasing funding for children with mental health issues.