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UK economy shrinks as household spending cuts

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The UK economy contracted in the second quarter, with households cutting spending as the cost of living crisis began to exacerbate, and healthcare output declining as Covid cases and testing declined.

Gross domestic product (GDP), a measure of the amount of goods and services produced, fell 0.1% in the second quarter of this year after rising 0.7% in the previous quarter.

A temporary recovery is expected in the third quarter before the UK plunges into a recession over the winter as further rising energy prices squeeze household incomes and hit spending.

The decline was larger at the end of the quarter, with GDP falling 0.6% in June, but the decline reflects losses on the second day of the Queens Platinum Jubilee. However, the National Statistical Office said the celebration had little effect on its quarterly estimates, and the decline in GDP reflects a halt in economic growth.

Overall, Friday’s figures were close to the figures expected by economists and the Bank of England.

Darren Morgan, director of economic statistics at ONS, said the economy contracted slightly during the quarter as ill health and retail business were partially offset by growth in hotels, bars, hair salons and outdoor events throughout the quarter.

Yael Selfin, chief UK economist at KPMG, said the end of the coronavirus testing and tracking program had a significant impact on production cuts in the second quarter, which, though temporary, could see weakness across the economy.

Households are already hurt by rising inflation, which is putting pressure on real incomes, and rising interest rates make mortgage services cheaper. She said an Ofgems utility tariff hike this fall could be the last straw before the UK plunges into a consumer-led recession.

The UK economy outperformed the US in the second quarter, but worse than the other G7 countries in Germany, France, Italy and Canada, which have seen bigger rebounds from the pandemic.

Prime Minister Nadhim Zahawi said: “I know the times are tough and people will be concerned about inflation and slowing growth. “He said.

Some economists were more gloomy and thought the decline in GDP had already signaled the onset of a recession. “It looks like the UK economy is in recession now,” said Stephen Millard, deputy director of the National Institute of Economic and Social Research. [because] We expect production to continue to decline over the next three quarters.

The details of the Q2 figures show that households are already feeling the crisis, offset by the good news from consumption down 0.2% and business investment up 3.8%. Corporate investment has been erratic during recent quarters and is still 6% below pre-pandemic levels.

Trade performance was again sluggish with another record trade deficit excluding precious metals. Under the measure, exports were $27.9 billion less than imports, a gap representing 4.5% of national income, the highest since comparative records began in 1997.

While most of this deficit reflects expensive oil and gas imports, there has been a notable increase in vehicle and machinery imports from the EU without an increase in exports.

On a sector-by-sector basis, the major declines in production in the second quarter occurred in services, particularly the health and retail sectors, offset by service improvements related to the booming travel sector. Manufacturing, like the North Sea oil and gas sector, contracted slightly despite record prices.

The figures show that the UK economy is 0.6% bigger than the quarter before the pandemic, but much smaller than expected, suggesting that it could have lasting damage to economic performance.

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