U.K. Economy Probably Shrank for First Time in Seven Years

(Bloomberg) -- The U.K. economy probably shrank for the first time since 2012 in the second quarter, according to Bloomberg’s latest survey of economists.

The prediction for a 0.1% contraction in the three months through June marks a downgrade from the previous poll, when economists only predicted stagnation. The forecast came as retail industry reported another drop in sales and said “the picture is bleak.”

The latest poll follows a dismal week of reports in the U.K., with Purchasing Managers’ Indexes showing the dominant services industry barely growing in June, and both construction and manufacturing sectors suffering outright contractions. Bank of England Governor Mark Carney last weekwarned that global trade tensions, and the growing threat of a no-deal Brexit, had increased downside risks to growth.

Official data due Wednesday is forecast by economists to show growth rebounded to 0.3% in May, after a contraction of 0.4% in April. Still, such a reading would mean an expansion of 0.8% was needed in June just to return a flat result for the quarter as a whole, according to Bloomberg calculations.

In a separate report, the British Retail Consortium reported on Tuesday that retail sales fell 1.6% in June from a year earlier on a like-for-like basis. That’s worse than the average change in the past 12 months, the lobby group said.

The worsening outlook, both at home and overseas, has also left investors and economists rewriting their calls for U.K. interest rates. Markets are now almost fully pricing in a rate cut for mid-2020, while the latest survey shows economists don’t see a move higher until the second quarter of 2021.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;Harumi Ichikura in London at hichikura@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint, Fergal O'Brien

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