Brexit volatility weighs on economy

LONDON — The British economy unexpectedly shrank in the second quarter for the first time since 2012 as Brexit uncertainties heaped pressure on firms, official figures showed Friday.

The decline is set to raise alarm that the economy could experience its first recession in a decade. The quarterly contraction lowered the annual growth rate to 1.2% from 1.8% in the first quarter. Most analysts expected the economy to flatline.

In seeking to explain the fall in the AprilJune period, the Office for National Statistics noted there was “increased volatility around the U.K.’s original planned exit date from the European Union in late March.”

Brexit was scheduled to happen on March 29, but was delayed to the end of October after Parliament rejected the withdrawal agreement that the previous prime minister, Theresa May, had negotiated with the European Union.

Before the extension was granted, many firms used up warehouse space to help them cushion the likely disruption from Britain crashing out of the EU on March 29 without a deal. That stockpiling boon helped the economy grow by 0.5% in the first quarter. When the extension was granted, there was less need for firms to stockpile.

The runup to the original Brexit date also prompted many car companies to bring forward their annual maintenance shutdowns to April as they concluded that the early weeks of a nodeal Brexit would be the most disruptive.

The combination of these Brexitrelated developments led to a sharp 1.4% quarterly decline in the output of production industries.

The fact that the overall economy performed worse than anticipated is likely to increase concern about Brexit’s corrosive effect on the economy. May’s successor, Boris Johnson, has insisted that Britain will leave the EU on Halloween come what may.