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UK economy contracts for first time since 2012

Reuters

Workers assemble motorcycles at the Triumph Motorcycles factory in Hinckley, England, on Oct. 2, 2017.

Photo: AFP

The British economy shrank unexpectedly in the second quarter for the first time since 2012, dragged down by a slump in manufacturing just as Prime Minister Boris Johnson prepares to leave the EU with or without a divorce deal.

In the most startling economic warning sign since the 2016 Brexit referendum, GDP fell at a quarterly rate of 0.2 percent in the three months to June, below all forecasts in a Reuters poll that pointed to a flat reading.

Year-on-year economic growth slid to 1.2 percent from 1.8 percent in the first quarter, the British Office for National Statistics said, its weakest since the start of last year.

Annual growth in June alone was the weakest since August 2013 at 1 percent.

“The economy is stalling,” PwC senior economist Mike Jakeman said.

The Brexit crisis and the uncertain global outlook left the nation’s economy on a “knife-edge” for the third quarter, he added.

Many auto factories ramped up manufacturing at the start of the year and brought forward production breaks to prepare for Britain’s original Brexit date of March 29, but the divorce was delayed by then-British prime minister Theresa May.

“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,” ONS statistician Rob Kent Smith said.

The economic hazard warning lights are flashing, just as the trade dispute between the US and unsettles the world economy.

“This is a challenging period across the global economy, with growth slowing in many countries,” British Chancellor of the Exchequer Sajid Javid said.

“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.

Many investors say a no-deal Brexit would send shock waves through the world economy, tip Britain into a recession, roil financial markets and weaken London’s position as the pre-eminent international financial center.

The Bank of England last week predicted that growth would only stage a limited pick-up to a quarterly rate of 0.3 percent during the current quarter and that growth for the year as a whole would drop to 1.3 percent.

June manufacturing data was also unexpectedly poor and output for the quarter contracted at the fastest rate since early 2009, when Britain was mired in recession.

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 has slowed since June 2016’s vote to leave the EU, with annual growth rates dropping from more than 2 percent before the referendum to 1.4 percent last year.

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