UK economy contracted in July amid Brexit fallout

Jake Cordell
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A Brexit storm may be approaching
A Brexit storm may be approaching (Source: Getty)

The UK economy contracted in July as the UK was left reeling from the fallout of the vote to leave the European Union, a leading economic think tank has estimated.

The National Institute of Economic and Social Research (Niesr) said the UK shrunk by 0.2 per cent during the political turmoil of July. Niesr said the figures confirmed their previous prediction that the UK has a 50-50 chance of dipping into a technical recession – defined as two consecutive quarters of negative growth.

In the three months to July, the economy grew by 0.3 per cent, the think tank estimated.

A fall in growth in any one month on the Niesr readings does not mean the UK will chalk up a negative growth rate for the quarter, and the think tank warned monthly data is more volatile. However, they are broadly in line with the monthly readings of the closely-watching purchasing managers' indexes (PMIs), which suggest a 0.4 per cent contraction in the third quarter of the year.

Monthly figures point to a 0.2 per cent contraction in the third quarter of the year.

James Warren, research fellow at Niesr said the figures implied a "marked economic slowdown."

He added: "The month on month profile suggests that the third quarter has got off to a weak start, with output declining in July. Our estimates suggest that there is around an evens chance of a technical recession by the of 2017."

Official data showed that the UK economy grew by 0.6 per cent in the first three months of the year and 0.4 per cent in the second quarter.

The Bank of England warned last week growth would grind to a halt over the rest of the year, suggesting that without its emergency stimulus package, the UK would have been tipped into recession.

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