The UK economy shrank during the second quarter of the year, according to the latest data from the Office for National Statistics (ONS), raising concerns that it could slip into recession later this year.
The ONS recorded a 0.2 per cent contraction in gross domestic product (GDP) during the second quarter of the year, the first estimate showed.
The first fall in quarterly GDP since Q4 2012 followed a strong first quarter where the economy grew by 0.5 per cent, as the below chart shows.
Source: ONS
“GDP contracted in the second quarter for the first time since 2012 after robust growth in the first quarter,” said Rob Kent-Smith, head of GDP at the ONS. “Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU.
“The construction sector also weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all.”
He added: “The trade deficit narrowed markedly, as imports fell following a sharp rise in the first quarter ahead of the UK’s original departure date from the EU.”
As such, economists will be looking for signs of further contraction during the third quarter of the year, which would signal that the economy has entered a technical recession.
Below, several industry experts give their opinion on how likely a recession is and what lies in store for the economy ahead of the Brexit deadline.
“The UK should avoid a recession…unless there’s a ‘no deal’ Brexit”
Thomas Pugh, UK economist at consultancy Capital Economics, said while the first estimate “raises the spectre of recession”, a recession is unlikely.
“Almost all the weakness was due to the drag from ‘net’ stock-building and trade,” he explained. “And we expect growth to rebound in Q3, so the UK should avoid a recession…unless there’s a ‘no deal’ Brexit.”
Large swings towards net stock-building and trade during the first quarter were triggered by shifts in activity ahead of the original 29 March Brexit deadline, said Pugh, which added 0.4 percentage points to Q1 growth and subtracted 0.8 points from Q2.
“So, just as Q1 looked better than it was, Q2 looks worse,” the economist said.
Averaging growth over Q1 and Q2, which Pugh said should remove most of the Brexit-related distortions, growth was 0.2 per cent and not far off the 0.3 per cent quarter-on-quarter growth recorded during the second half of last year.
Source: ONS
Nevertheless, while economic indicators have been “pretty dire” in the third quarter so far, the fact that car manufacturers are working in August when they are usually closed should be a positive.
“As such, we think the economy will grow in Q3, which would mean that the UK economy avoids a recession. But how Q4 turns out is entirely dependent on whether there’s a Brexit deal or ‘no deal’,” he added.
‘There’s no doubt the UK is struggling’
The latest GDP figures show that the UK is struggling to deal with the uncertainty caused by Brexit, according to Close Brothers Asset Management chief investment officer Nancy Curtin, although there could be a repeat of the first quarter in Q3 as manufacturers build up inventory ahead of 31 October could mitigate
“There’s no denying that the UK’s GDP figures are a cause for concern,” she said. "However, the jury’s still out on the extent of inventory built-up."
“We are likely to see a similar phenomenon ahead of October, as firms look to mitigate supply chain disruption in the case of a ‘no deal’ Brexit, which may provide short-term support for GDP.”
She added: “On the whole though, there’s no doubt the UK is struggling. The services and automotive sectors have decelerated, construction and manufacturing have declined, and business activity has stalled.
“The impact of Brexit is no doubt exacerbated by the wider global slowdown.”
As such, Curtin (pictured) said a rate cut this side of Christmas is looking ever more likely should a ‘no deal’ outcome come about. 
“On the bright side, the prime minister’s plans for ‘boosterism’ – government spending to support the UK economy – could serve as a counterbalance to recent stagnation,” she concluded. “With uncertainty over Brexit still high, however, the outcome for growth remains uncertain.”
‘We’re retaining our UK equities underweight’
Edward Park, deputy chief investment officer at Brooks Macdonald, said the Q2 GDP figure had missed consensus forecasts of 0.0 per cent growth.
“This is the first negative quarter of UK GDP growth since Q4 2012 and shows the extent of the contraction in manufacturing and business investment post the initial Brexit deadline,” he said. “Whilst household consumption growth has held up well we continue to see the headline numbers as finely balanced.”
As such, Park said the firm would retain its underweight position in UK equities given the politically driven economic uncertainties.
“The market reaction to the UK’s Q2 GDP contraction has been fairly muted driven by the fact that June was largely in line with market expectations but April, which is viewed as a Brexit anomaly, was the major reason for the quarter-on-quarter fall in economic activity,” he added.