Out-Law / Your Daily Need-To-Know

Brexit uncertainty ‘starting to bite’ business as GDP falls

Out-Law News | 12 Aug 2019 | 9:52 am | 1 min. read

The UK economy shrank by 0.2% in the second quarter of 2019, the first time gross domestic product (GDP) has fallen since 2012.

The Office for National Statistics (ONS) said GDP by volume had dropped compared to the first quarter of 2019, although it had increased by 1.2% compared to the same quarter of 2018.

Brexit advisory expert Clare Francis of Pinsent Masons, the law firm behind Out-Law, said the fall could be attributed to continued uncertainty over the nature of the UK’s withdrawal from the EU.

“The bottom line is that political unrest and the threat of a no-deal Brexit is starting to bite. British businesses are reluctantly spending on no-deal planning with stockpiling and warehousing costs already hitting the bottom line,” Francis said.

“Valuable leadership time is being taken up trying to mitigate the impact of a no-deal and protect jobs. But as the political situation remains fractious, leaders remain vigilant in their investment and growth decisions,” Francis said.

The ONS said services sector output provided the only positive contribution to GDP growth between April and June 2019, although growth in this sector slowed to 0.1% during the period.

The production sector contracted by 1.4% during the second quarter. This was the largest downward contribution impacting GDP growth. The ONS said the fall was driven by a sharp decline in manufacturing output which was reflective of increased volatility in the first half of 2019.

The ONS said the “path of GDP and some of its components has been particularly volatile through the year so far”. It attributed the volatility to the timing of Brexit, which was originally planned for late March and is now set for 31 October.

According to the statistics agency, stockpiling during the first quarter of the year provided a boost to GDP in the first three months of 2019. However, these increased stock levels were partly run down between April and June, and a number of car manufacturers brought forward their annual shutdowns to April as part of contingency planning.

According to the ONS, monthly estimates showed GDP growth was flat in June 2019, while there were some downward revisions to earlier months in the quarter.

Despite the second-quarter contraction, UK GDP grew by 0.5% in the first six months of the year. GDP has risen consistently on a half-yearly basis since the second quarter of 2009.

Prime minister Boris Johnson said after his election to the post that the UK would leave the EU by 31 October, even if it was impossible to finalise a withdrawal agreement with the EU by that date.