The Brexit uncertainty pushed the UK economy into negative territory as the country’s GDP growth rate drops. The reports of the second quarter of 2019 show the contraction of the economy by 0.2%. It the first time in seven years the economic growth rate of the UK took a u-turn, shrinking the economy. Last time it happened in the first quarter of 2012.
The GDP figures for the second quarter of the year made Britain the worst performing economy among the Group of Seven nations (G7). Canada reported the strongest growth rate of 0.9% in the second quarter followed by the US (0.5%) and Japan (0.4%). Among the G7, besides the UK, Germany, France, and Italy are the ones facing a slump in the economy with a growth rate at 0.1%, 0.3%, and no change respectively.
Five years ago it was a completely different story. With market confidence high, the UK was the fastest-growing economy among the major advanced economies back in 2014.
The slump in the figure, adds to the agony of already hurting the British economy. What made things worse was UK Prime Minister, Boris Johnson’s recent announcement about the suspension of the UK Parliament weeks before the Brexit. The no-deal Brexit is gradually growing from an assumption into a reality, increasing investors’ anxiety. It has turned the markets volatile and even pulled pound down by 1.1% against the dollar. Analyst predicts a further drop in the pound, as its just the beginning of the dark times.
It is not only the country’s GDP growth rate but also investor confidence, consumer spending and business sentiment that has fallen, increasing the fear of recession. While some economist feels that with the two consecutive quarters of negative growth, the UK economy is already speedily rolling towards recession.
Ruth Gregory, the senior UK economist at Capital Economics, said the Brexit uncertainty caused a major dip in the GDP in the second quarter. If Brexit wasn’t in the picture the UK economy would have reported modest growth. He said that the fate of the UK economy now depends on October 31, the date when Britain would divorce the bloc with or without a deal. According to Gregory, “If there is a no-deal Brexit, there will probably be a recession at the turn of the year.”