Economy contracts amid inflation crisis and recession fears - live updates




  • In World
  • 2022-08-12 08:57:41Z
  • By The Telegraph
Platty Joobs - AP Photo/Matt Dunham
Platty Joobs - AP Photo/Matt Dunham  
  • Western sanctions have 'limited impact' on Putin regime, warns International Energy Agency

  • GDP fell by 0.1pc in second quarter, first decline since early 2021

  • FTSE 100 set for flat performance

  • Ambrose Evans-Pritchard: The next PM should not be bounced into stupid energy policies by this mood of near hysteria

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The UK economy shrank in the three months to June amid the worst inflationary crisis in decades.

GDP fell on a quarterly basis for the first time since the start of last year, amid a 0.6pc output fall in June alone.

The 0.1pc contraction follows growth of 0.8pc in the first three months of 2022, according to the Office for National Statistics (ONS).

Britain's dominant services sector shrank 0.4pc, as the Government's vaccine drive and test and trace programme continued to wind down.

Production output climbed as more households and businesses turned the air conditioning on to cope with hot weather, increasing energy demand. Construction output also rose across the quarter.

June's decline marked the worst monthly drop since January 2021, when the country was in a stringent winter lockdown.

The economy is expected to grow during the current quarter, before slumping into a recession later this year as rocketing prices crush activity and demand.

09:57 AM

ICYMI: Truss rules out windfall tax increase

In case you missed our splash today: Liz Truss on Thursday night rejected calls to increase the windfall tax on energy companies to fund cost of living handouts for households, saying profit is not a "dirty word".

Our lobby team reports:

  • Read more: Liz Truss: No windfall tax on energy companies

09:47 AM

Money round-up

Here are some of the day's top stories from the Telegraph Money team:

  • Loophole that beats the 'seven-year rule' on inheritance tax:  Families are using an unusual insurance policy to save thousand.

  • Smart meter users could be moved to 'prepayment plans' if they don't pay bills:

    Campaign to cancel direct debits from October has gathered more than 100,000 supporters.

  • Where we think inflation will go from here - and what it means for investors: Questor Wealth Preserver: a look at what caused this bout of price rises will help you maintain the real value of your money.

09:21 AM

Flutter flies on upbeat US assessment

Gambling giant Flutter Entertainment is leading FTSE 100 risers today, popping 9pc higher after saying there had been "no discernable" slowdown from customers.

The group - which operates PaddyPower and others - said its US business is also performing better than expected.

That has been welcomed by markets, because America is seen as a key growth area.

Chief executive Peter Jackson said:

09:05 AM

Rhine likely to fall below critical point today

Rhine - REUTERS/Wolfgang Rattay
Rhine - REUTERS/Wolfgang Rattay  

The Rhine - Germany's key waterway - is expected to become impassable at a key chokepoint today as a heatwave devastates Europe.

Water levels at Kaub, a particularly shallow point of the river, are likely to fall below 40cm today according to Government data. At that point, many of the barges that use the river will be unable to pass.

As Bloomberg neatly sums it up:

08:51 AM

GSK rises after pushback over Zantac claims

Pharma giant GlaxoSmithKline is on the rise today after saying it will vigorously defend claims of a link between Zantac, a heartburn treatment it formerly developed, and cancer.

The FTSE 100 company - which suffered its biggest share price drop since 1998 yesterday amid worries over legal challenges - is up about 2.5pc.

It said the litigation against itself and several others was "inconsistent with the scientific consensus".

08:34 AM

Russian fuel imports hit zero

One interesting nugget from the ONS, which found overall UK imports from Russia were the lowest on record (back to 1997) - Britain seems to have gone completely cold turkey on Russian fuel:

08:29 AM

Trade deficit widens to new record amid scramble for fuel

The UK's trade deficit widened to a record £27.9bn across the second quarter amid a boom in demand for fuel, according to the ONS.

It says:

ONS
ONS  

Part of this was due to inflation, statisticians said: adjusted for price risest, the deficit narrowed by £2.4bn to £22.6bn.

Total trade fell 2.1pc, amid a decline in exports:

08:12 AM

FTSE 100 rises

It's been a slightly stronger-than-expected open for the FTSE 100 after those expectation-beating growth figures. The blue-chip index is up about 0.25pc at the moment.

07:58 AM

Niesr: Economy already in recession

The venerable National Institute of Economic and Social Research reckons the UK is already in a recession - standing out somewhat by predicting another fall in output this quarter.

As a reminder, two consecutive quarters of negative growth is the typical definition of a recession.

Stephen Millard, its deputy director for macroeconomic modelling and forecasting, says:

07:52 AM

Reaction: Economy holding up 'better than expected'

Here's some of the reaction to this morning's GDP numbers

Ruth Gregory from Capital Economics:

Thomas Pugh from auditor RSM :

James Smith from the Resolution Foundation:

07:41 AM

More on that recession…

The Bank of England has predicted that the economy will fall into a recession at the end of 2022, lasting well over a year.

Here's how its prediction looked - although it already appears to have been too downbeat about the second quarter.

Both Tory leadership candidates have pledged more support for households struggling to pay their bills.

Liz Truss, the frontrunner to take over from Boris Johnson as Prime Minister, has rejected the idea that a recession is inevitable. The foreign secretary has promised immediate tax cuts to boost incomes.

"We can change the outcome and make it more likely the economy grows," she said last week.

Her rival Rishi Sunak has claimed Ms Truss's "unfunded" tax cuts would pour "fuel on the fire" of inflation, which is expected to hit 13.3pc in October, when the energy price cap is expected to surge.

07:38 AM

Tourism and hotels benefit from fall in cases

The ONS said tourist attractions and hotels benefitted after Covid-19 travel restrictions were lifted at the end of March.

Days out increased, helping to boost the leisure industry, while the Queen's Platinum Jubilee celebrations drove a surge in sales at mobile food stands and takeaway food shops, even as the extra bank holiday in June dragged down monthly output.

Most analysts expect the economy to bounce back over the summer (July to September), before a surge in energy bills this October drags the economy back into decline.

07:36 AM

Wind-down of pandemic-era schemes was biggest drag on services

Britain may have been returning to 'normal' for much of the second quarter, but cut both ways for growth thanks to the winding up of the Government's massive pandemic-era health schemes.

Across services, the ONS says "the largest negative contribution from human health and social work activities, reflecting a reduction in coronavirus (COVID-19) activities".

Overall:

Here's how that looks in the context of service contributions to growth more widely:

ONS
ONS  

07:32 AM

British growth second-worst in G7

Here's that 0.1pc decline in the context of other G7 countries. As you can see, the UK has found itself near the bottom of the pack, with only the US (which has entered a technical recession) performing worse.

ONS
ONS  

07:28 AM

Economy still bigger than before pandemic

Despite the overall quarterly fall, and the 0.6pc June decline, the UK economy is still 0.9pc bigger than before the pandemic (i.e. February 2020) on a monthly basis, per the ONS:

ONS
ONS  

07:23 AM

Hard to price in Jubilee impact

The Queen's Platinum Jubilee celebration certainly had an impact on growth in June, says the ONS, although on first read it seems statisticians struggled to put an exact number on it.

They say:

One area where the festivities appear to have caused a clear boost is eating out: estimates from booking service OpenTable show a 23pc increase in seated restaurant diners during the week containing the Jubilee bank holidays.

In the broad though, it was pretty muted. The ONS says "there was little impact on the quarterly estimates" from the celebration.

07:16 AM

'Too early' to call recession

Yael Selfin, chief economist at KPMG UK, says it is "too early" to call a recession. She adds:

07:15 AM

Zahawi: We can pull through

Here's Chancellor Nadhim Zahawi's response to those figures:

07:14 AM

Snap take: First quarterly contraction since early 2021

Britain's economy shrank by 0.1pc between April and June amid the worst inflationary crisis in decades.

GDP fell on a quarterly basis for the first time since the start of last year, amid a 0.6pc output fall in June alone.

That marked the worst monthly drop since January 2021, when the country was in a stringent winter lockdown.

The economy is expected to grow during the current quarter, before slumping into a recession later this year as rocketing prices crush activity and demand.

Darren Morgan, the ONS's director of economic statistics, said:

07:05 AM

Decline across all major sectors

All sectors suffered a decline in output during June, although manufacturing came out of the quarter looking unscathed despite soaring prices.

07:03 AM

Slowdown less sharp than feared

Both today's headline numbers came in softer than economists had feared:

  • Q2 GDP: -0.1 (expectation: -0.2pc)

  • June GDP: -0.6 (exp.: -1.2pc)

07:02 AM

Breaking: Economy suffers quarterly contraction

Just in: The UK economy shrank by the slimmest of margins during the second quarter, with GDP falling by 0.1pc after a 0.6pc decline in June.

06:57 AM

Agenda: Britain braced for contraction

Good morning. It's all about growth this morning, as we get June figures for GDP that will complete numbers for the second quarter.

National output is expected to have taken a 1.2pc knock in June, down in part to the Platinum Jubilee celebrations. Across the quarter, that's expected to result in a 0.2pc fall.

Elsewhere, the FTSE 100 is on course for a flat day, after falling yesterday despite wider optimism about calming inflation.

5 things to start your day 

1) British EDF customers pay twice as much as French for energy  Macron's price cap on state-owned supplier shields households from soaring costs

2) Hong Kong suffers record fall in population as people flee zero-Covid curbs  The city lost 113,200 residents in the year to June

3) Breaking up HSBC would unlock up to £29bn payday, says Chinese shareholder  Insurer accuses lender of 'exaggerating' challenge of spinning off its Asian business

4) Heathrow sale revives hopes of a third runway under new Prime Minister  But whoever enters Number 10 still faces environmental hurdles and a sector in flux

5) Mark Zuckerberg branded 'creepy' by Facebook's own chatbot  Social media company 'exploits people for money', artificial intelligence program warns

What happened overnight 

Asian markets mostly fell on Friday, winding back some of the previous day's rally, as traders come to terms with the likelihood that central banks will continue to raise interest rates to battle runaway inflation.

Asia struggled to maintain momentum, with Hong Kong, Shanghai, Sydney, Seoul, Singapore, Manila, Jakarta and Wellington all slightly lower.

Tokyo, however, jumped more than 2pc and investors there returned from a one-day break to play catch-up with Thursday's bounce. Taipei also rose.

Coming up today

  • Corporate: 888 Holdings, Flutter Entertainment, TBC Bank Group (interims)

  • Economics: GDP (UK), industrial production (UK, EU), manufacturing production (UK), Michigan consumer sentiment index (US)

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