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    UK economy posts surprise contraction, worst quarter since 2012

    The British economy has shrunk for the first time since late 2012, after official data Friday showed second-quarter gross domestic product (GDP) contracted by 0.2%.

    A consensus of analyst forecasts had predicted the economy would flatline during the period.

    In reaction, the pound dipped below $1.21 versus the dollar but soon recovered ground. Against the euro, the pound also fell. The FTSE 100, which often reacts inversely to the fortunes of the pound, rose after the results but was still in negative territory on Friday morning.

    Manufacturing was the biggest contributor to the overall contraction, slipping 2.3% quarter-on-quarter in the three months to June. That figure was the biggest quarterly fall since the first three months of 2009.

    Simon Dawson | Bloomberg via Getty Images

    On a month-to-month measure, June GDP came in at exactly zero, versus expectations of a 0.1% rise.

    A slowdown in U.K. output was expected after a build up of inventories during the first quarter in anticipation of a March Brexit date. Britain's exit from the EU was delayed and is now scheduled for October 31.

    Should the U.K. suffer a further contraction in the three months to the end of September, then the U.K. economy will officially be in recession.

    Chief Business Economist at IHS Markit, Chris Williamson, warned on Twitter that PMI (Purchasing Managers' Index) data is currently suggesting further softness for the third quarter.


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