The pound fell again on Friday after shock figures revealed UK economy shrunk for the first time since 2012 as the country lurches closer to recession and a calamitous no-deal Brexit.
Sterling was down 0.3 per cent against both the dollar and the euro on the back of news that GDP unexpectedly contracted 0.2 per cent in the April-June quarter.
The weak pound would normally be expected to boost exports but Britain's manufacturers but output from the sector plunged, official data shows.
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The UK economy had been expected to flatline in the latest quarter but instead it contracted by 0.2 per cent as the impact of ongoing uncertainty around Brexit began to hit home.
The economic contraction was driven by a plunge in manufacturing output, partly because car makers brought forward their annual shutdowns to April in anticipation of the previous 29 March Brexit deadline.
Services provided the only positive contribution to GDP growth, although growth in the sector slowed to a crawl, at 0.1 per cent compared with the first quarter.
Responding to the news, the chancellor, Sajid Javid, claimed that the "fundamentals of the British economy are strong", pointing to rising wages and high employment.
Amazingly, he pointed to the government's plan to take the UK out of the EU under any circumstances on 31 October as reason for economic optimism.
With little prospect of a renegotiated deal by that date, the UK faces a chaotic no-deal Brexit - an outcome that almost every economist thinks would be disastrous for UK GDP.
Javid said:
“This is a challenging period across the global economy, with growth slowing in many countries. But the fundamentals of the British economy are strong â wages are growing, employment is at a record high and we are forecast to grow faster than Germany, Italy and Japan this year,” Javid said in a statement.
“The government is determined to provide certainty to people and businesses on Brexit that's why we are clear that the UK is leaving the EU on 31 October.”
Looking further into the ONS data, construction activity fell by £521m in the quarter as public sector construction activity saw the biggest quarter-on-quarter decline since records began two decades ago.
Mark Robinson, Scape Group chief executive, says:
"The stark reality is both the public and private sector are continuing to err on the side of caution and new work has flatlined.
“This decline in output is not restricted to new work though, with the repair and maintenance of private housing falling by a staggering £325 million. This significant drop comes at a time when we know 25% of homes in the private rented sector continue to be classified as non-decent, and we urgently need landlords across the country to review their housing stock and carry out essential repairs.
“This decline in output is not restricted to new work though, with the repair and maintenance of private housing falling by a staggering £325 million. This significant drop comes at a time when we know 25% of homes in the private rented sector continue to be classified as non-decent, and we urgently need landlords across the country to review their housing stock and carry out essential repairs.
So, what is the likelihood that the UK will enter a recession, generally defined as two successive quarters of shrinking output?
Thomas Pugh, UK economist at Capital Economics, expects the economy to rebound in Q3, "unless there's a no-deal Brexit".
Much of the 0.2 per cent quarterly decline resulted from stockpiling, or rather the lack of it.
Before the 29 March deadline, manufacturers ramped up output and other firms bought up extra stocks in order to prepare for a disorderly Brexit.
That gave economic figures a short-lived boost. As firms have wound down stocks they have produced less and that boost has been reversed.
Pugh explains: "Averaging growth over Q1 and Q2, which should remove most of the Brexit related distortions, growth was 0.2%. This isn’t too far off the 0.3% average q/q growth in the second half of 2018, but there’s a clear risk that the underlying trend has softened.
Here's the full story on the UK's unexpectedly poor economic performance from The Independent's business and economics editor, Olesya Dmitracova:
The pound is hovering perilously close to the 31-month low against the dollar of $1.208 it reached earlier this month.
It's now at $1.2083...
One bright spot in today's economic numbers was the continued resilience of British consumers.
Spending rose 0.5 per cent in the second quarter, although this was down slightly from 0.6 per cent in the previous three months.
Consumers have seen wages begin to rise above inflation in recent months.
Howard Archer, chief economic advisor to the EY ITEM Club, is not too optimistic about the prospects for the economy over the next few months:
He says: "Survey evidence largely points to the economy getting off to a lacklustre start to the starting off the third quarter with retail sales soft and the manufacturing and construction sectors struggling, although there was seemingly a limited pick-up in services activity."
The economy would pick up if the UK leaves the EU with a deal on 31 October, Archer predicts.
But if no-deal happens:
"We suspect major uncertainty would negatively impact business sentiment and investment, and also affect consumers (albeit to a lesser extent).
“Trade would be substantially affected as non-tariff barriers kicked in. The impact of changes in tariffs is harder to judge as the Government has indicated that, under a temporary scheme, 87% of imports by value would be eligible for zero-tariff access compared to 80% of imports currently being tariff free. Meanwhile, supply chains would be affected by any disruption at ports.
“A sharp drop in sterling is likely with a ‘no-deal’ Brexit; this would provide help to UK exporters but it would also push up businesses’ costs and consumer price inflation, thereby hitting households’ purchasing power."
Might the pound's latest falls begin to give a boost to UK exporters?
Not likely, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
"We see no reason why the 5% depreciation of trade-weighted sterling over the last three months will support GDP growth soon, given that net trade failed to make any positive contribution to GDP growth after sterling’s much bigger 15% depreciation in 2016."
"UK exporters will bank the windfall, rather than lower their foreign-currency prices. What’s more, the recent depreciation entirely reflects rising concern about a no-deal Brexit, which will dissuade overseas firms from sourcing goods from UK suppliers, given the risk that supply chains could suddenly fail."
Survey data from the third quarter seems to support this thesis. Full story here:
A British-West African industrial consortium has submitted a last-minute rescue offer to snap up the British Steel plant in Scunthorpe, the Press Association reports.
PA understands the unnamed industrial group has submitted a late bid to the government in an effort re-establish the international trade credentials of the site.
The consortium, which involves a leading UK civil engineering company operating in West Africa, is the latest to enter the fray to take control of the steel supplier after it collapsed into liquidation 11 weeks ago.
More on the potential impact of closure on Sconthorpe, here:
Package holiday firm On the Beach has blamed the plummeting pound foe a profit warning issued today.
It says sterling's tumble against the euro has forced it push up its holiday prices compared to competitors.
Unlike many of its rivals, On the Beach it does not hedge its exposure to currency changes.
John McDonnell has seized on the latest GDP figures, which he says are a "direct result of Tory incompetence".
"The Tories' Brexit bungling, including Boris Johnson now taking us towards no-deal, is breaking the economy."
More on the reaction to today's numbers from political correspondent Ashley Cowburn:
Advertising firm WPP led Friday's FTSE 100 firms as its shares jumped after it performed ahead of analyst predictions.
Investors cheered the beleaguered firm's revenue performance as its major turnaround programme gathered pace in the second quarter. The company, which was left struggling after a string of client losses following Sir Martin Sorrell's exit last year, limited its revenue decline to 1.4 per cent for period.
Press Association
The pound is back to its lowest in more than two-and-a-half years against the dollar.
It has fallen 0.5 per cent to $1.2067, a level last visited in January 2017.
Against the euro the pound has fallen to a new two-year low of €1.078, down 0.7 per cent today.
The FTSE 100 closed down 0.6 per cent to 7,242.79.
The FTSE 250 index of mid-sized firms was down 0.3 per cent to 19,085.12.
"Taken by itself, a 0.2 per cent contraction of UK GDP between April and June would not be a major concern," says Michael Kitson an economics lecturer at Cambridge University.
"But the alarm bells should be ringing with the Office of National Statistics (ONS) alerting about a “slowing in the underlying figures” combined with concerns about the government’s economic policy."
