Fears of imminent recession

Extract from Redwood Financial’s Economic Review July 2019

Although the economy returned to growth in May, fears of a slowdown are mounting, with some economists warning that the UK may be on the verge of a recession.

Official gross domestic product (GDP) data released by ONS shows that the UK economy grew by 0.3% in May, compared to the previous month, when Brexit-related shutdowns at car plants resulted in a contraction of 0.4%. However, despite the modest monthly rebound, the latest batch of GDP statistics still suggests that the economy has witnessed a distinct loss of momentum since the start of the year.

Analysts have also warned that June’s growth figures will need to be relatively strong if the UK economy is to avoid an overall contraction across the whole of the second quarter. The June data that has been released in a number of closely watched business surveys from the manufacturing, services and retail sectors suggest this is unlikely to be the case. 

Indeed, in its August 2019 review of UK economic prospects, the National Institute of Economic and Social Research (NIESR) suggested that economic growth in the UK has actually stalled. The renowned think-tank also said that chances are now one-in-four that the Brexit crisis has already tipped the country into a technical recession, which is defined as two consecutive quarters of negative growth. 

The NIESR assessment also warned that risks to economic growth were heavily skewed to the downside given the increasing chance of a no-deal Brexit and the possibility this could be disorderly. The report concluded: “The outlook beyond October, when the UK is due to leave the European Union, is very murky indeed with the possibility of a severe downturn in the event of a disorderly no-deal Brexit.”

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