So it’s official: the UK economy contracted by 0.2% in the second quarter – a worse performance than stagnation predicted on average by economists beforehand. Sterling hit new two-year lows against the US dollar on Friday because of the shock, and economists’ attention is turning now to whether the UK is currently in recession. Matthew Oxenford, Europe analyst at the Economist Intelligence Unit, said: The next two quarters are likely to be marked by significant uncertainty over Brexit, and this slow rate of growth makes it more likely that the UK will enter a recession, especially in the event of a no-deal exit from the EU on 31 October. Business investment in the second quarter of 2019 was about 13% lower than it would have been had the pre-referendum trend (from 2010 onwards) continued, according to Berenberg economists. That would weigh on future growth, they said: The persistent threat of a hard Brexit since June 2016 has weighed heavily on the risk appetite of UK businesses. Unsurprisingly, investment has fared badly. Somewhat ironically, the latest Brexit deadline could actually save the UK from a technical recession (two quarters of contraction) as companies build up stocks once more. The same force “boosted” growth in the first three months of the year, but don’t pop the champagne: as Friday’s data demonstrates, any sugar rush is very temporary. The data put pressure on the government, according to David Owen, chief European economist at Jefferies. He said: If the need arrives, the next Bank of England governor has to be able to say truth to power, especially when it comes to issues surrounding financial stability and if, like 1976, there is a run on sterling. And buckle up for another Italian election. Milan’s FTSE MIB index fell by Imogen Bachra, European rates strategist at NatWest Markets, said the investment bank has stopped buying Italian government bonds. Yields (which move inversely to prices) on Italian government debt rose steeply on Friday to hit the highest in a month. But Mario Draghi and Christine Lagarde, the current and future heads of the European Central Bank, will prevent a more major Italian debt sell-off with more quantitative easing bond buying, she added: New elections are now a base case. Markets were not blindsided and have been increasingly pricing election risk, but this is still a step change. The threat of fresh elections will worry markets, but significant widening should be contained by quantitative easing expectations as markets weigh-up the additional political uncertainty against the prospect of the end of this almost-worst-case government. Thanks for following our coverage of business, economics and markets today. Join us as ever on Monday. JJ
The Brexit economy shrank by 0.2% in Q2 2019 , performing worse than the predicted 0% , according to the Office for National Statistics . The figure prompted speculation of a recession, sparked by UK and the wider global slowdown. It followed earlier growth forecast warnings from Monetary Policy Committee the Bank of England's , while analysts anticipate a cut to interest rates before Q2 2019 .