UK output was flat over the period, according to Office for National Statistics data published on Monday, with growth down from 0.3% recorded in the quarter to April. Gross domestic product fell from the 0.1 percent economists polled by Reuters had forecast, with the size of the economy in July the same as in the previous six months. The UK’s growth rate has lost momentum since the start of the year as rising costs hit businesses and consumers. Inflation surged to a 40-year high in July, eroding the money people have available to spend on goods and services.
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Output rose 0.2 percent between June and July, largely reflecting the loss of two business days in June associated with the celebration of Queen Elizabeth II’s jubilee. In June, the economy shrank by 0.6%, while July’s recovery was weaker than investors had expected for a 0.4% expansion. “The disappointingly small recovery in real GDP in July suggests that the economy has little momentum and is probably already in recession,” said Paul Dales, UK chief economist at Capital Economics. Some economists believe the freeze on average annual household energy bills at £2,500 over the next two years, announced last week by new Prime Minister Liz Truss, will help support demand in the economy over the coming months. James Smith, an economist at ING, said the package of measures did not guarantee the economy would avoid slipping into a technical recession, but would “help limit the depth of any recession over the winter”. But with many households and businesses already struggling to keep up with payments even before bills are scheduled to rise on October 1 when the energy price cap rises, the UK’s economic outlook remains dim. “Households continue to face a further decline in their real incomes in the second half of this year,” said Martin Beck, chief economic adviser at EY Item Club. “As things stand, the economy is unlikely to do more than stagnate next year.” Economists expect the Bank of England to raise interest rates for the seventh time in a row at its next meeting, which is likely to cause a further slowdown in consumer demand. Markets are pricing in a 79 percent chance of a 75 basis point increase from the current 1.75 percent. According to the latest PMI, economic activity has been contracting since August, when consumer confidence fell to its lowest level since records began. The services sector rebounded in July, growing 0.4 percent and boosting GDP growth. Meanwhile, output fell 0.3 percent, following a 0.9 percent decline the previous month, with construction activity also recording two consecutive sharp contractions. Separate figures published by the ONS on Monday showed that the deficit in trade in goods and services, excluding precious metals, widened by £1.2bn to £27bn in the quarter to July compared with the previous quarter, almost a record since comparable data were collected for the first time in 1997. This expansion was due to the rising value of imports, reflecting rising energy prices due to Russia’s invasion of Ukraine and a weak export market. Natural gas prices hit a new high in August, with exports likely to continue to struggle as external demand from key trading partners softens and trade frictions over Brexit remain.
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“The trade deficit is going to get massive in the coming months,” said Gabriela Dickens, an economist at Pantheon Macroeconomics. GDP was estimated at 1.1 per cent above pre-pandemic levels in July, according to the ONS. However, the number does not affect revisions that put the pandemic’s hit to the economy in 2020 higher than initially expected.
