UK economy shrank by 0.1% in three months to June as recession fears grow

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The UK economy contracted 0.1% in the three months to the end of June amid warnings of a looming recession.

The fall followed a 0.8% rise in GDP in the first quarter of the year, according to the Office for National Statistics (ONS).

The latest data shows that the service sector was particularly hard hit, falling 0.4% in the second quarter. Much of this fall has been in health and social work as less money has been spent on the fight against Covid-19.

Darren Morgan, director of economic statistics at ONS, said: “As growth was slightly reduced in May and June showed a marked drop, the overall economy contracted slightly in the second quarter.

“Health was the main reason for the contraction in the economy as testing, tracing and vaccination programs were phased out while many retailers also had a tough quarter.

“This was partly offset by an increase in hotels, bars, hairdressers and outdoor events during the quarter, partly as a result of the Platinum Anniversary celebrations.”

The economic downturn is expected to deepen as the Bank of England and financial experts predict that the UK could enter a recession later this year.

“While we see growing signs of underlying weakness in the economy, we expect a more severe downturn only to occur towards the end of this year,” said Yael Selfin, chief economist at KPMG UK.

Responding to the latest GDP data, Chancellor Nadhim Zahavi tried to set a positive tone. “Our economy has shown incredible resilience since the pandemic and I am confident that we will be able to meet these global challenges again,” he said.

However, he acknowledged that the cost of living crisis is having a big impact on households across the country.

“I know times are tough and people will be worried about rising prices and slowing growth and that’s why I’m determined to work with the Bank of England to control inflation and grow the economy.”

Forecasts of higher marginal energy prices heightened fears about inflation.

Earlier this week, energy consultancy Cornwall Insight estimated that the average household’s annual electricity bill would rise to £3,582 from October and £4,266 from January when Ofgem raises price caps.

Experts urged the government to do more to help vulnerable households, but new plans have yet to be developed to help the public cope with rising costs.

Labor Party leader Rachel Reeves accused the government of not having a plan to stabilize the economy.

“The economy is shrinking. Inflation is on the rise. It is clearer than ever that the conservatives have lost control of the economy,” said the shadow chancellor.

“With the Bank of England projecting a recession lasting all of next year, the Conservative leadership contenders must stop playing the gallery and start developing a serious plan to get the British economy back on track,” she added.

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