The UK’s economy shrank by 0.1% in the three months to June according to figures from the Office of National Statistics (ONS).
A dip in output in the second quarter followed 0.8% growth in the first which was driven by the health sector, as Covid testing wound down, and retail, as household spending fell due to higher inflation.
However, the decline in the second quarter was smaller than the 0.2% fall that economists had predicted.
Soaring gas and electricity costs drove an increase in production output in the second quarter, while construction output also rose, according to the ONS.
“Health was the biggest reason the economy contracted as the test-and-trace and vaccine programmes were wound down, while many retailers also had a tough quarter,” said Darren Morgan, a director of economic statistics at the ONS.
The economy shrank by 0.6% in June, after 0.4% growth in May partly explained by the Queen’s platinum jubilee, leading to an extra day in May and two fewer working days in June. This was less than a 1.2% decline forecast.
"The slight fall in GDP in Q2 is a by-product of the extra public holiday for the Queen’s Jubilee, rather than a sign the economy is already in a recession," said economist Samuel Tombs at Pantheon Macroeconomics.
It is not possible to tell if June’s dip reflects a smaller-than-usual hit from the Jubilee compared to other years when there have been similar numbers of bank holidays, said Tombs, or if it is evidence that the economy has considerable underlying momentum.
"Either way, GDP likely snapped back in July and might even have exceeded its trend level modestly, if businesses were still depleting work backlogs created by staff absences in June, or if fewer people than usual were on vacation, because they decided to take time off in June instead."
Economists at ING said while the fall in UK GDP during the second quarter was "largely down to noise", the risk of recession, as forewarned by the Bank of England, is "rising quickly", with the price of natural gas futures hitting new highs for next winter and latest estimates suggesting the household energy price cap could come close to £5,000 in the second quarter of next year.
"Much now depends on fiscal policy announcements in the autumn," they added.