The sense of excitement among some Remainers is almost palpable. Finally – after three years of waiting – a quarter of negative growth has materialised following all the grim warnings of Brexit-related economic turmoil.
The Office of National Statistics (ONS) this morning released its first estimate for economic growth for the second quarter of this year, which has come out at minus 0.2 per cent. That counteracts unexpectedly strong growth in the first quarter of 0.5 per cent.
Manufacturing, which shrank by 2.3 per cent, was the worst-performing sector of the economy. The dominant services sector expanded but only just, at 0.1 per cent.
Another quarter of negative growth and Britain will be in recession – albeit rather later and shallower than George Osborne infamously predicted just ahead of the 2016 recession. Back then, the chancellor published Treasury forecasts suggesting that GDP would slip by between 3.5 and six per cent within two years of a Leave vote – and that unemployment would rise by between 500,000 and 800,000. In the event, unemployment has fallen to a 45 year low.
But these latest figures aren't necessarily to do with Brexit. For one thing, growth across the EU has slumped. By the time that the next UK quarterly figures are published in November, Germany and Italy may well be in recession. Italy has already had a recession, in the latter half of last year; Germany very nearly suffered the same fate, with two quarters of zero growth.
It is therefore difficult to argue that the UK is doing especially badly thanks to Brexit. The entire global economy may be heading for recession, which wouldn’t be surprising. Recessions seem to be a pretty inevitable part of our economic system, and have tended to occur every few years as a result of cycles of production and consumption. It might be said the global economy is due a recession, having not suffered one for a decade.
On the other hand, I wouldn’t take it for granted that next quarter’s UK growth figures will be negative. Another figure published this week but much less reported was the IHS/Markit Purchasing Managers’ Index (PMI) for the UK services sector in July. This is a forward-looking measure of confidence which, as the ONS notes in its release this morning, has run very closely ahead of the ONS’s figures – what shows up in the PMI tends to be reflected in ONS statistics a month later.
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The PMI for services in June was 50.2 – where anything over 50 denotes expansion and anything under 50 contraction. For July, however, it came in at 51.4 per cent, which indicates a pick-up in services. We ought, in other words, to expect GDP in services to expand when the next ONS figures are published – which could well keep us out of recession.