The backdrop of Brexit turmoil saw GDP contract by 0.2 per cent in the second quarter of the year, it has emerged.
Business leaders warned confidence among UK firms remains “dire” and the figures, released by the ONS, were a “rude awakening”. But Chancellor Sajid Javid said he did not expect the economy to slide into recession, which would require a second successive quarter of contraction between July and September.
The economy was weaker than both market expectations and the Bank of England’s latest forecasts, which had pointed to flat growth in the quarter.
The setback emerged after separate figures last week showed Scotland’s economy enjoyed relatively high growth of 0.6 per cent in the first quarter of the year.
SNP Economy spokeswoman Kirsty Blackman said: “The ONS figures showing the economy has shrank and suffered its worst performance in nearly seven years has left Scotland and the UK teetering on the brink of a catastrophic recession.
“This must serve as an urgent wake-up call for a Tory government that is gambling with businesses, jobs and people’s livelihoods as we hurtle towards the October deadline.
“Rather than railroading ahead with his damaging Brexit plans and scheming on ways to bypass Parliament and democracy to inflict such an outcome, the Tory Prime Minister must instead heed the economic warnings and return to reality before it is too late.
“Earlier this week, revised GDP figures published in Scotland for the first quarter of 2019 showed that Scotland was outperforming the UK’s economy – highlighting that the strengths of Scotland’s economy are now being undermined by Brexit.”
The pound dropped on the news and declined further over the morning. It was trading at 1.206 US dollars by Friday lunchtime, its lowest point since early 2017.
The fall in GDP was driven by a fall in manufacturing after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU.
The contraction compares to 0.5 per cent growth in the previous quarter, when the highest quarterly pickup in manufacturing since the 1980s was recorded.
Economists had not been forecasting a contraction in the economy in the second quarter, but had expected it to stagnate, with the consensus forecast for 0 per cent growth.
Companies had been building up additional goods in the first quarter in anticipation of a March Brexit.
Mr Javid said: “I am not expecting a recession at all.
“And in fact, don’t take my word for it. There’s not a single leading forecaster out there that is expecting a recession, the independent Bank of England is not expecting a recession. And that’s because they know that the fundamentals remain strong.”
The employers’ body, the CBI, said the contraction was “concerning”.
Alpesh Paleja, CBI lead economist, said: “It’s clear from our business surveys that underlying momentum remains lukewarm, choked by a combination of slower global growth and Brexit uncertainty.
“As a result, business sentiment is dire.”
The Federation of Small Businesses (FSB) – which is calling for an emergency Budget – said that if the Treasury delays action until after 31 October, the date for Brexit, its efforts are likely to prove too little, too late.
“Time is of the essence. Unless the chancellor steps in imminently with radical action, we could be heading for a chaotic autumn – and a very long winter,” said the FSB’s policy and advocacy chairman, Martin McTague.
John McDonnell, the shadow chancellor, said the “dismal economic figures are a direct result of Tory incompetence”. “The Tories’ Brexit bungling, including Boris Johnson now taking us towards no-deal, is breaking the economy.”
Production output fell by 1.4 per cent, with manufacturing showing a 2.3 per cent decline.
The sector was also weighed down by a drop in transport equipment, which was 5.2 per cent lower due to annual car factory closures being brought forward from summer to April, as companies planned for possible Brexit disruption.