Britain on the cusp of recession

Property developments are pictured in the City of London. Britain’s economy unexpectedly shrank in the second quarter of this year on Brexit turmoil, official data showed, placing the country on the verge of recession. (AFP)
Updated 11 August 2019

Britain on the cusp of recession

  • Dramatic slump in construction and manufacturing sectors blamed for fall in UK gross domestic product

LONDON: Britain’s economy unexpectedly shrank in the second quarter of the year on Brexit turmoil, official data showed, placing the country on the verge of recession and sending the pound tumbling to a 2.5-year low.
Gross domestic product (GDP) fell 0.2 percent in the April-June period, the first time the economy has contracted in almost seven years, the Office for National Statistics (ONS) said in a statement, blaming a dramatic slump in the construction and manufacturing sectors.
The data, which was worse than market expectations for zero growth and also reflects global economic strains, sent the pound diving to $1.2056 — the lowest level since early 2017.
Another contraction in the current third quarter would put Britain in an official recession, ahead of the nation’s expected withdrawal from the EU at the end of October.
“The latest data reveal an economy in decline and skirting with recession as headwinds from slower global economic growth are exacerbated by Brexit-related paralysis,” said IHS Markit economist Chris Williamson.
The result contrasted with 0.5-percent expansion in the first quarter, when activity was boosted by companies stockpiling ahead of Brexit.
Output was buoyed in the first three months of 2019 because Britain had initially been scheduled to leave the EU at the end of March.
“GDP contracted in the second quarter for the first time since 2012 after robust growth in the first quarter,” said Rob Kent Smith, ONS head of GDP.
“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.
“The construction sector also weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all,” he added.
British Prime Minister Boris Johnson replaced Theresa May after winning the Conservatives’ leadership contest on a pledge to take Britain out of the bloc on Oct. 31 with or without a divorce deal.

The latest data reveal an economy in decline and skirting with recession as headwinds from slower global economic growth are exacerbated by Brexit-related paralysis

Chris Williamson, IHS Markit economist

Brexiteer Johnson, a pivotal “Leave” campaigner in the 2016 EU exit referendum, has repeatedly insisted that Britain can make an economic success of Brexit.
Chancellor of the Exchequer Sajid Javid on Friday said that the global economy was slowing, but highlighted other recent positive data for the UK.
“This is a challenging period across the global economy, with growth slowing in many countries,” said Javid.
“But the fundamentals of the British economy are strong — wages are growing, employment is at a record high and we’re forecast to grow faster than Germany, Italy and Japan this year,” he added.
“The government is determined to provide certainty to people and businesses on Brexit — that’s why we are clear that the UK is leaving the EU on Oct. 31.”
The government’s official forecaster last month warned that Britain would slide into a year-long recession should it leave the EU without a deal.
Bank of England Gov. Mark Carney recently warned that a no-deal Brexit could undermine entire sectors of the economy such as the car industry and farming.
“The latest look at the UK economy makes for pretty grim viewing,” XTB analyst David Cheetham said in reference to Friday’s data.
“Given the growing threat of a no-deal Brexit that looms menacingly overhead, it would not be at all surprising if the current quarter also shows a contraction — therefore meeting the standard definition of a recession.”
May stepped down after failing to get her EU-divorce deal through parliament and being forced to delay Brexit twice.


US President Trump does not want to do business with China’s Huawei

Updated 19 August 2019

US President Trump does not want to do business with China’s Huawei

  • US Commerce Department expected to extend a reprieve that permits Huawei to buy supplies from US companies to service its customers

WASHINGTON: US President Donald Trump on Sunday said he did not want the United States to do business with China’s Huawei even as the administration weighs whether to extend a grace period for the company.
Reuters and other media outlets reported on Friday that the US Commerce Department is expected to extend a reprieve given to Huawei Technologies Co. Ltd. that permits the Chinese firm to buy supplies from US companies so that it can service existing customers.
The “temporary general license” will be extended for Huawei for 90 days, Reuters reported, citing two sources familiar with the situation.
On Sunday, Trump told reporters before boarding Air Force One in New Jersey that he did not want to do business with Huawei for national security reasons.
He said there were small parts of Huawei’s business that could be exempted from a broader ban, but that it would be “very complicated.” He did not say whether his administration would extend the “temporary general license.”
Speaking earlier on Sunday, National Economic Council director Larry Kudlow said the Commerce department would extend the Huawei licensing process for three months as a gesture of “good faith” amid broader trade negotiations with China.
“We’re giving a break to our own companies for three months,” Kudlow said on NBC’s “Meet the Press.”