UK economy contracts by 0.5% in July as storms and strikes take their toll
Figures from the Office for National Statistics (ONS) show that UK gross domestic product (GDP) is estimated to have fallen by 0.5% in July, with drops across all three main sectors.
Output in services sector fell by 0.5% and was the largest contributor to the fall in monthly GDP; production output fell by 0.7% and construction output fell by 0.5%. This is the first month since June 2022 that all three sectors contributed negatively to GDP on the month.
The main contributor to the fall in monthly services output was the human health and social work activities sub-sector, which fell by 2.1% in July 2023. This was attributed to strike by doctors and other health workers. NHS England reported that 65,557 appointments and procedures were cancelled because of the senior doctors strike and 101,977 acute in-patient and out-patient appointments were cancelled because of the industrial action by junior doctors.
Monthly GDP showed no growth in July 2023 compared with the same month last year. For comparison, monthly GDP grew by 0.9% between June 2022 and June 2023.
But the ONS said the “broader picture” for the country looked “more positive” as GDP showed 0.2% growth in the three months to July 2023 when compared with the three months to April 2023. Production grew by 0.6% and was the main contributing sector to the three-month growth. Services and construction output also increased in the three months to July, both by 0.1%.
Unclear whether UK dodges recession
Alice Haine, personal finance analyst at Bestinvest, said: “Despite fears of a recession, Britain’s economy has remained resilient so far this year, despite the multiple threats posed to output by rapidly rising interest rate hikes, sticky inflation, persistent industrial action and the cost-of-borrowing crisis. The road ahead looks less forgiving, however, with interest rates now at their highest level in 15 years and expected to jump again by 25 basis points when the Monetary Policy Committee meets again later this month – a move designed to constrain demand and expenditure in the economy.
“Whether the UK will continue to dodge a recession – as defined by two successive quarters of contraction – remains unclear. While a recent revision of historical growth by the ONS showed the UK recovered from the Covid-19 pandemic much faster than previously thought, the economy still has a number of battles to overcome.”
Another base rate hike on the way
Derrick Dunne, CEO of YOU Asset Management, said: “The UK experienced a sharp 0.5% drop in GDP for July, driven by weak performance in all of the key sectors.
“For the Bank of England, the balance between fighting inflation without inhibiting economic growth is becoming increasingly tough, and so we hope today’s release will offer food for thought as to whether high inflation – and subsequently, wage growth – are the most pressing issues on a forward-looking basis.
“This is particularly pertinent with another interest rate rise now hotly anticipated next week. Since the restrictive effects of rate hikes can take between 9 to 12 months to be fully felt in an economy, it’s possible today’s drop will only be the tip of the iceberg in terms of economic pain.
“It’s understandable, if not acceptable, that this is the environment we find ourselves in. However, as the first half of 2023 has shown us, uncertain economic conditions do not mean poor investment returns. An appropriately diversified portfolio, underpinned by support from a high-quality financial adviser, is the best approach during these times.”