UK Economy Contracts 0.1% In Q2 — Analyst Says 'Difficult To Dodge Recession'

The U.K. gross domestic product shrank in the second quarter by 0.1% after having witnessed an expansion of 0.8% in the first quarter, according to official data.

The contraction in GDP comes in the wake of the country staring at further potential rate hikes. Bank of England Deputy Governor Dave Ramsden recently said the central bank will probably have to raise interest rates further from its current 14-year-high to take on inflationary pressures, according to a report by The Guardian.

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Why It Matters: A rising interest rate hurts businesses’ abilities to borrow more funds or to repay the existing debt, thereby, slowing down the economy.

According to the Office for National Statistics, in output terms, services fell by 0.4% in the second quarter with the largest negative contribution from human health and social work activities, reflecting a reduction in COVID-19 activities.

A 0.2% decrease in real household consumption was recorded, according to the release.

Monthly Statistics: Monthly estimates show GDP fell by 0.6% in June, following a downwardly revised 0.4% increase in May, the release said.

Expert Take: Hussain Mehdi, macro and investment strategist at HSBC Asset Management told CNBC that U.K. growth is stagnating as the economy faces challenges from a severe real income squeeze amid elevated inflation and higher interest rates. “In this backdrop, it will be difficult to dodge recession, especially with upside risks to energy prices heading into the winter,” Mehdi said.