The UK economy unexpectedly shrunk for the first time in 7 years - and the pound is getting clobbered

The UK economy unexpectedly shrunk for the first time in 7 years - and the pound is getting clobbered

Britain's Prime Minister Boris Johnson arrives to welcome King Abdullah II of Jordan outside 10 Downing Street in London, Britain August 7, 2019. REUTERS/Toby Melville


Britain's Prime Minister Boris Johnson.

  • The UK economy contracted for the first time since 2012, as GDP slid 0.2% between April and June.
  • The Office for National Statistics said a fall in construction and manufacturing output was to blame.
  • The pound fell 0.4% against the dollar to below $1.21, adding to its 4.5% fall over July and August.
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The UK economy shrank for the first time in seven years as output fell 0.2% between April and June, with falls in manufacturing and construction partly to blame.

The pound tanked on Friday morning, falling 0.4% in against the dollar and adding to its 4.5% fall over July and August. The decline stemmed in part from rising no-deal Brexit fears, fanned by Prime Minister Boris Johnson.

The UK contraction comes as the global economy has experienced a slowdown, in part due to trade-war fears and Brexit. The German economy has been suffering as a result of the US-China trade war. Industrial output fell in Germany on Wednesday, while Italy's debt has increased massively.

"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," said Rob Kent Smith on Twitter, head of gross domestic product at the ONS.


Boris Johnson's pursuit of a no-deal has also been one of the major talking points, with the pound taking a hit due to fears of what the impact would be on the British economy.

"While not widely predicted, the contraction in the economy and its drivers will have hardly come as a shock," said Geoffrey Yu, Head of UK Investment Office at UBS Wealth Management.

"Total business investment is down as the stockpiling 'bounce' from Q1 faded, having a more severe impact than anticipated," he added. "Those looking for positives will take heart from robust private consumption, reflecting a healthy labour market and the sharp increase in government spending."

Yu added: "The global picture is becoming more gloomy. As uncertainty continues to loom over the UK economy, the difficult run of data is expected to continue and the BoE will need to consider its next step carefully as its global peers embark on further rate cuts."

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