Britain’s GDP shrank by 0.2% in the second quarter, its first dip in seven years. A recession seems unlikely, but Brexit is taking a toll
STERLING HAS taken a beating in recent weeks on fears of a no-deal Brexit, briefly falling to a two-year low against the euro on August 8th. Now the British economy has taken one too. Official figures released on August 9th showed that GDP shrank by 0.2% in the second quarter, its first dip in seven years. That surprised market commentators and the Bank of England, which had pencilled in stagnation, not contraction. Manufacturing output slid by 2.3%, its sharpest quarterly decline since 2009.
Brexit-induced volatility explains some of the drop. Nervous businesses brought forward production and built up stockpiles ahead of March 29th—the day on which Britain was first due to leave the European Union—hoping to minimise disruption after Brexit. That helped push GDP growth to 0.5% in the first quarter, but pulled it down in the second, as companies ran down their stocks.
And now another Brexit deadline looms. Firms will probably start stockpiling again in the run-up to the new leaving date, October 31st. Companies warn that, if Britain departs without a deal, they will then shed workers and slash investment. Buckle up.
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