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Economy contracts by 0.1% in the second quarter

Shoppers walk through the rain on Oxford Street in London.

Tolga Akmen/AFP/Getty Images

The UK economy contracted in the second quarter of 2022 as the country’s cost of living crisis hit.

Official figures published on Thursday showed gross domestic product (GDP) shrank by 0.1[ads1]% quarter-on-quarter in the second three months of the year, less than the 0.3% decline expected by analysts.

It comes after GDP increased by 0.8% in the first quarter of the year.

Last week, the Bank of England warned that it expects the UK economy to enter its longest recession since the global financial crisis in the fourth quarter. Meanwhile, inflation is forecast to peak above 13% in October.

Monthly estimates showed GDP fell 0.6% in June, less than the consensus forecast of 1.3% but down from a revised 0.4% increase in May.

“UK growth is stagnating as the economy faces challenges from a severe real income squeeze amid rising inflation and higher interest rates,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.

“Against this backdrop, it will be difficult to avoid a recession, especially with upside risks to energy prices heading into winter.”

However, despite the macroeconomic headwinds, HSBC is backing major UK stocks to continue to outperform this year given “exposure to commodities, value and defensive names.”

The Office for National Statistics, which publishes the growth figures, said the decline was largely driven by a fall in service output, with the biggest burden coming from health and social work activities, reflecting a slowdown in Covid-19 activities.

It noted that there was a 0.2% fall in household consumption in the second quarter, offset by a positive contribution from net trade.

This is a news in development and will be updated soon.

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