UK economy grew less than expected in July with ‘feeble’ 0.2% bounce back, figures show

The UK economy staged a modest rebound in July and grew by 0.2%, new figures show.

The figure was lower than the 0.3% expected by most economists and follows a fall of 0.6% in June, when output was affected by the Queen’s Platinum Jubilee bank holiday.

‘Feeble’ growth in July

Despite the rise in gross domestic product (GDP) in July, the growth in the economy was held back by the scorching heatwave and pressure from soaring prices, according to the Office for National Statistics (ONS).

The ONS said GDP was flat in the three months to July compared with the previous three months and still leaves the economy at risk of dropping into a recession as the cost of living crisis hits households and businesses.

The figures show the services sector was the biggest driver of the July increase, growing by 0.4% over the month following a 0.5% drop in the sector between May and June.

Consumer-facing services grew by O.6% in July as one-off sporting events, such as the Women’s Euro 2022 football tournament, boosted spending, while the heatwave helped ice-cream makers, golf clubs and amusement parks, the ONS added.

However, record high temperatures in July meant there were some lost working days, in particular in the construction sector as it was too hot for workers to go on sites, and there was also lower usage of electricity, which knocked the production industry.

Soaring costs in particular were flagged as a hit to growth in sectors such as construction, which contracted by 0.8% in July, while production fell by 0.3%.

Yael Selfin, chief economist at KPMG UK, described July’s growth as “feeble” and warned of a recession later this year.

She said: “More concerning, July’s GDP remains below the level seen in May, pointing to an overall contraction over the first two months of summer.

“This ties into a downbeat outlook for the UK economy which could see another shallow recession from the end of this year, driven by the ongoing squeeze on households’ income and a rising cost burden for businesses.

“While nearly £170 billion worth of fiscal measures announced last week may be sufficient to avoid a deeper economic slump, these will be partly offset by tighter Bank of England monetary policy focused on combating the high levels of inflation.”

Queen’s funeral could impact growth

Experts believe the extra bank holiday for the Queen’s funeral on Monday 19 September could affect growth again this month, with Pantheon Macroeconomics pencilling in a 0.2% hit to GDP from the lost working day.

Samuel Tombs, chief UK economist at Pantheon, said this means a technical recession – as defined by two quarters in a row of falling output – is now “hanging in the balance” after the economy contracted by 0.1% between April and June.

Mr Tombs said that while the government’s move to cap energy prices will help households and businesses, interest rate rises will still put pressure on consumers.

He said: “The main threat to the economic outlook now comes from an excessive tightening of monetary policy, but we think that the MPC (Monetary Policy Committee) will see sense soon.

“Accordingly, we continue to think that a recession will be narrowly avoided over the coming quarters.”

Investec Economics said that even if the economy avoids a recession this year, it remains a risk in 2023 as the Bank is set to continue raising interest rates to combat inflation.

It said: “This combined with a subdued world economy and some continued pressures on household balance sheets suggests that the economy will experience a recession in the second half of next year.”