Britain ‘teetering on edge of recession’ after economy shrinks amid Brexit uncertainty

Brexit turmoil has helped condemn Britain’s economy to its first quarterly slump in more than six years, official figures reveal today.

Output fell by 0.2 per cent between April and June, leaving the country “teetering on the edge of recession”, shocked City economists said.

The fall in GDP was far worse than forecast and sent the battered pound into yet another dive. By mid-morning sterling was down just over a third of a cent against the dollar at $1.2103.

It was the first quarter of negative growth since the end of 2012, when Britain was emerging from the deep downturn triggered by the financial crash.

It deals a blow to Boris Johnson’s new Government and raises the possibility of a full blown recession — defined as two consecutive quarters when GDP falls — just as Britain braces itself for a potential no-deal Brexit at the end of October.

Chancellor Sajid Javid insisted Britain could ride out what he described as “a challenging period across the global economy”. 

He said: “The fundamentals of the British economy are strong — wages are growing, employment is at a record high — and we’re forecast to grow faster than Germany, Italy and Japan this year. 

“The Government is determined to provide certainty to people and businesses on Brexit —that’s why we are clear that the UK is leaving the EU on 31 October. 

“I’ve announced an accelerated spending round so ministers can focus on delivering Brexit, while also delivering the investment we promised in priority areas like schools, police and our NHS.”

But former minister Stephen Hammond, Tory MP for Wimbledon, said: “These are extremely disappointing and worrying figures. They reflect the enormous concerns about the failure to secure a deal with the EU and the likely consequences of no deal. 

“It is time to redouble our efforts to secure a deal and start negotiations on a mutually prosperous economic future for our citizens.”

A breakdown of the GDP figures from the Office for National Statistics shows that the worst of the damage was inflicted by the manufacturing sector, which contracted by 2.3 per cent, the biggest quarterly fall since the height of the banking crisis in April 2009.

The dominant services sector, which accounts for 80 per cent of the economy, was also weak but narrowly avoided a fall with growth of 0.1 per cent. However, the ONS said that more than half the 51 services industry sub-sectors had shrunk, with architectural and engineering services hit hardest. The slowdown in the world economy caused by the trade disputes between the US and China also contributed to the fall in GDP.

But City commentators said the scale of the downturn should serve as a huge warning to the Government about the potential impact of a no-deal Brexit.

Simon French, chief economist at Panmure Gordon, said: “The first contraction in growth since 2012 means the UK economy is teetering on the edge of recession. The private sector is looking at recent events in Westminster and concluding that the Tories are at risk of losing their hard-won reputation for economic competence.” 

Rajan Naik, director of trading education website Financial Markets Online, said: “Sterling has taken a knee-jerk hit in response, but as pound-watchers chew over the full horror of Britain’s economic slowdown, it is their gnawing fear of a chaotic no-deal Brexit that is ultimately dragging down sentiment.

“With the forward-looking PMI data suggesting that even worse is to come for the UK economy, the ‘R word’ is starting to be uttered in earnest. Project Fear is feeling more real by the day.”

Shadow chancellor John McDonnell said: “The Tories’ Brexit bungling, including Boris Johnson now taking  us towards no-deal, is breaking the economy.”