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The U.K. economy experienced major distortions in the second quarter after firms stockpiled goods in the run-up to the original March 29 Brexit deadline, figures published Monday show.
The Office for National Statistics confirmed the economy shrank 0.2% between April and June as companies offloaded products piled up in warehouses. It was the first quarterly contraction for seven years.
Britain also saw its current-account deficit cut by a quarter. Imports, which surged in the first quarter as firms accumulated foreign-made components to guard against the possibility of trade disruptions, sank to their lowest level for more than a year.
With Britain now due to leave the European Union on Oct. 31, there is evidence that stockpiling resumed to some extent in the third quarter. A return to growth is forecast, averting a pre-Brexit recession, but economists say a slump is likely next year if Britain crashes out of the European without a deal to soften the blow.
Read more: how companies stockpiled to prepare for Brexit
Bank of England policy maker Michael Saunders said last week that even if the U.K. avoids a no-deal break, prolonged uncertainty could damage the economy enough to require rate cuts.
Key Insights
- Change in inventories cuts GDP by 1.9 percentage points, slightly less than the 2.1 points previously estimated. This all-but offsets boost of 2.6 points from a sharply reduced trade deficit
- Stocks excluding the alignment adjustment fell 2.7 billion pounds
- Brexit-related factory closures hit auto output, a pattern which could be repeated in November. Manufacturing fell 2.8%, the biggest decline since 2009. Services grew just 0.1%, the least for three years
- The current-account deficit -- the gap between money leaving the U.K. and money coming in -- narrowed to 25.2 billion pounds, or 4.6% of GDP
- Imports of goods and services fell by 11.2%, with unspecified goods, which includes non- monetary gold, accounted for a significant chunk of the decrease. Exports fell 5.9%, reflecting weaker global growth
- However, the current-account deficit was larger than forecast. This was due to the shortfall on investment income, which widened sharply to 6.6 billion pounds amid higher FDI payments to foreign investors
- Business investment fell 0.4% but the economy got support from government spending and households, with a 0.4% rise in consumer spending reflecting real wage growth
- Government spending rose 1.1%, largely reflecting increased spending in the National Health Service as austerity eases. State spending rose 4% from a year earlier, the most since 2008
- GDP rose 1.3% from a year earlier, revised from 1.2%
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- With pay growth now easily outstripping inflation, real disposable income rose 0.7%
- Households saved more of their income as a result, with the saving ratio rising to 6.8% First quarter revised up to 6.4% from 4.1%, suggesting households are in a better position to weather Brexit turbulence than previously thought
- Sweeping revisions mean households have been net lenders over the past two years, as they spent and invested less than they received. They were previously estimated to be net borrowers
- The ONS said people have been donating less to charity than previously thought and receiving more money from renting their homes
- Changes to the accounting treatment of student loans also mean less money is being lent to households by the government
- There were small upward revisions to quarterly GDP growth in recent quarters. Economy grew 0.6% in first quarter, rather than 0.5%
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson
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