UK economy shrinks in 2nd quarter, likely to fall into recession later this year

The United Kingdom's economy shrank in the three months to June, figures released Friday showed a smaller-than-expected contraction that nevertheless added to jitters about the rocky months ahead.

The Office for National Statistics said Britain's gross domestic product fell by 0.1 percent between April and June, down from 0.8 percent growth in the previous quarter. GDP shrank by 0.6 percent in June, and growth estimates for May were revised down from 0.5 percent to 0.4 percent

The statistics office said health spending was the biggest contributor to the fall, as the government scaled down coronavirus testing, contact tracing and vaccination programs.

Many retailers also had a tough quarter, said, Darren Morgan, ONS director of economic statistics.

These were partially offset by growth in hotels, bars, hairdressers and outdoor events across the quarter, partly as a result of celebrations of Queen Elizabeth IIs Platinum Jubilee in June.

Analysts said the decline did not necessarily mean the start of a recession, often defined as two-quarters of economic contraction. The Bank of England, however, predicts that the U.K. will likely fall into recession later this year as a cost-of-living crisis worsens and inflation rises above the current 9.4 percent

The fuel bill for an average U.K. household has risen more than 50 percent this year as the war in Ukraine squeezed global oil and natural gas supplies. Another increase is due in October when the average bill is forecast to hit 3,500 pounds ($4,300) a year.

The fall in GDP of U.K. during the second quarter was largely down to noise, said James Smith, developed markets economist at ING Economics.

But the risk of recession is rising quickly, with gas futures hitting new highs for next winter and our latest estimates suggesting the household energy price cap could come close to 5,000 pounds in the second quarter of next year.

Much now depends on fiscal policy announcements in the autumn. Anti-poverty campaigners, consumer groups and opposition politicians are pressing Prime Minister Boris Johnsons Conservative government to help people cope with soaring bills.

But Johnson is in his final weeks as Prime Minister and he has already notified that significant financial decisions must be left to his successor, who will take office in September.