UK economy shrinks by 0.1% as experts predict a recession

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The Bank of England predicts the economy will contract again after Ofgem raised its energy price cap

According to the Office for National Statistics (ONS), gross domestic product (GDP) fell by 0.1% between April and June. It follows a positive first quarter in which GDP grew by 0.8%.

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Gross domestic product fell 0.1% between April and June (Photo: Getty Images)

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The latest data may not mark the start of a recession – defined as a two-quarters drop in GDP – but experts predict the UK will slide into recession later this year.

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Yael Selfin, Chief Economist at KPMG UK, said: “While we are seeing increasing signs of underlying weakness in the economy, we do not expect a deeper downturn until later this year.”

Latest predictions see the cap rising by 84% to £3,634 in two months and could top a staggering £5,000 next year.

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Experts have warned Ofgem could be forced to cap the average household at £5,038 a year in the three months from April next year, more than £200 higher than previous forecasts and putting additional pressure on households across the UK. Auxilione, an energy consultancy, also predicted bills would reach £4,467 in January.

The price cap hike is also adding to inflation fears, with CPI inflation expected to hit more than 13% in October, according to the Bank of England.

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The end of Test and Trace dealt a blow to the economy

The latest slowdown in the UK economy came as GDP contracted 0.6% in June and May growth estimates were revised down to 0.4% from 0.5%.

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The ONS said the phasing out of spending to combat Covid partly accounted for the decline over the quarter.

Darren Morgan, director of economic statistics, said: “Health was the main reason for the slowdown in the economy as both testing, tracing and vaccine programs were halted while many retailers also had a difficult quarter.

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“These were partially offset by growth in hotels, bars, hairdressers and outdoor events throughout the quarter, in part due to people celebrating the platinum anniversary.”

On Thursday (11 August) Chancellor Nadhim Zahawi and Prime Minister Boris Johnson refused to take fiscal action after meeting heads of Britain’s largest energy companies.

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After the meeting, they reiterated support for bills announced a few months ago when the October price cap was set to hit just £2,800 in October.

However, latest predictions show that the cap will be almost £900 higher than previously predicted and is likely to surpass £5,000 in April.

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Chancellor Zahawi said: “Our economy has shown incredible resilience in the wake of the pandemic and I am confident that we will once again meet these global challenges.

“I know times are tough and people will be concerned about rising prices and slowing growth, so I am committed to working with the Bank of England to get inflation under control and stimulate the economy.

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“The Government is making billions of pounds available to households facing rising costs, including £1,200 for eight million of the most vulnerable households.”

Any new government support to support rising energy costs will have to be decided by the new prime minister, who will not take office until early September.

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