UK economy may have shrunk for first time since 2012

The prediction for a 0.1% contraction in the second quarter marks a downgrade from June

The Bank of England forecasted that British GDP would only grow by 0.1 per cent in the final quarter of 2019. Getty Images

The UK economy probably shrank for the first time since 2012 in the second quarter, according to latest survey of economists.

The prediction for a 0.1 per cent contraction marks a downgrade from June, when economists only predicted stagnation. The survey came as retail industry reported another drop in sales and said “the picture is bleak”.

The latest poll follows a dismal week of reports in the UK, with Purchasing Managers’ Indexes showing the dominant services industry barely growing in June, and both construction and manufacturing sectors suffering outright contractions. Bank of England governor Mark Carney last week warned that global trade tensions, and the growing threat of a no-deal Brexit, had increased downside risks to growth.

Official data this week is forecast by economists to show growth rebounded to 0.3 per cent in May, after a contraction of 0.4 per cent in April. Still, such a reading would mean an expansion of 0.8 per cent was needed in June just to return a flat result for the quarter as a whole, according to Bloomberg calculations.

In a separate report, the British Retail Consortium reported on Tuesday that retail sales fell 1.6 per cent in June from a year earlier on a like-for-like basis. That is worse than the average change in the past 12 months, the lobby group said.

The worsening outlook, both at home and overseas, has also left investors and economists rewriting their calls for UK interest rates. Markets are now almost fully pricing in a rate cut for mid-2020, while the latest survey shows economists do not see a move higher until the second quarter of 2021.