UK GDP report could fuel recession fears – business live

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

With Brexit unresolved, trade wars raging between Washington and Beijing, and the world economy slowing, this is a tough time for the UK. But could Britain actually be flirting with recession?

A new healthcheck of the UK economy, due this morning, is likely to show that growth slowed sharply in the last few months.

Economists predict today’s report will show GDP only increased by 0.1% in the March-May quarter, down from 0.3% in February-April.

That would fuel concerns that the economy may actually have contracted in the second quarter of this year (we’ll find that out in a month’s time).

We already know that April was a rough month — the UK economy shrank, as auto-makers shut down production in case of a no-deal Brexit. So industrial and manufacturing production should have bounced back in May as the car industry returned to work.

Economists predict GDP increased 0.3% in May alone, having shrunk 0.4% in April and 0.1% in March.

But the overall picture may not be encouraging, especially as Britain’s trade deficit is expected to remain wide.

Adam Cole of Royal Bank of Canada explains:

This morning’s monthly GDP release for May is important after pronounced weakness in April and given growing expectations that the economy as a whole contracted in Q2.

Expectations are for most of April’s decline to reverse in May (0.3% m/m after -0.4%) and RBC economists are slightly above the consensus. Nonetheless, the arithmetic is such that a further monthly increase of 0.5% or more would be needed in June to avoid a negative reading for the quarterly average…..

Despite the monthly distortions around the original Brexit data, expect to hear increasing chatter about the UK being “on the cusp of recession” if the data continue to add up to negative quarterly growth.

Meanwhile the pound is hovering near a two-year low, as traders worry about the impact of Brexit uncertainty on the UK economy, and the threat of a Halloween no-deal if Boris Johnson becomes prime minister.

Investors will also watch Capitol Hill later, where Fed chair Jerome Powell will testify to the House Financial Services Committee. He’ll discuss the state of the US economy, and the chances of the interest rate cuts demanded by president Trump.

The agenda

• 9.30am BST: UK GDP report for May (expected to show growth slowed to 0.1% in the last three months)
• 9.30am BST: UK trade figures for May (deficit expected to widen to £12.5bn, from £12.113bn)
• 3pm BST: Federal Reserve chair Jerome Powell testifies to the House of Representatives
• 3pm BST: Bank of Canada’s interest rate decision