What's going on?
Data released on Wednesday showed that the British economy grew 0.3% in May after shrinking in April – but it probably wasn’t enough to stop UK growth contracting in the second quarter overall.
What does this mean?
Most areas of the British economy picked up in May – particularly the auto industry, which got its foot back on the gas after precautionary Brexit-related factory shutdowns back in April.
But economists still predict that economic growth will turn out to have shrunk last quarter compared to the previous one – for the first time in seven years. Just last month, those boffins had thought growth would at least remain flat. They could, of course, be proven wrong – so long as the UK economy expands 0.8% in June compared to May. But with the all-important services industry (which represents 80% of the British economy) failing to grow at all last month, such an acceleration seems unlikely, to say the least.
Why should I care?
For markets: The pound is getting thumped.
Fresh Brexit uncertainty appeared partly to blame for the value of Britain’s currency falling to levels not traversed in months versus the US dollar and euro this week – and Wednesday’s data probably did little to help. A shrinking economy might convince an indecisive Bank of England to lower British interest rates, boosting growth by making borrowing cheaper. Doing so, however, might drag the UK into a currency war with the US, eurozone, and China – all of which want to have cheap currencies that will boost international demand for their products.
The bigger picture: Canary for hire.
UK-based recruitment firm PageGroup said on Wednesday that its annual profit would be lower than it thought – and that a hiring slowdown across the UK, Europe, and Asia was to blame (it said the US jobs market was strong). Such companies are often early indicators of future economic activity: bad news might therefore presage a greater slowdown to come…