UK Economy Shrank by 0.5% in July
While Rishi Sunak promised to deliver economic growth for the country, official figures from the Office for National Statistics (ONS) have shown the opposite in effect. The combination of bad weather and strike action caused an economic downturn in July, to the tune of a 0.5% contraction. This is even worse than analysts were predicting, doing nothing to allay fears of a miniscule amount of economic growth in the country.
Despite the economic slump, the ONS was quick to point out the positives. A 0.2% growth in output was reported across the services, production and construction sectors in the three months to July. A slight boost was reported to come from various sporting events and visits to theme parks.
Part of the economic dip has been attributed to a drop in output from the services sector, including the NHS. Strike action was seen by radiographers and junior and senior doctors. Pay disputes caused nine days’ worth of strikes between these occupations. At the time, the government issued a final pay offer and said it would not shift.
The UK is not currently in a recession, but the low growth cycle the country has been trapped in for the last few months hasn’t put fears to rest. Some analysts are expecting the Bank of England to raise interest rates further to 5.5%. Even though the Bank Rate has been rising steadily over the past year, raising it too high too quickly could cause a recession.
Inflation was at 6.8% in July, but food inflation is still in double figures, at 14.9%. Another Sunak pledge was to halve inflation by the end of 2023. Despite the massive decrease after the cut in energy costs, this is proving trickier to manage.
The labour market has been weakening in recent months as there’s been an increase in unemployment and a drop in the number of vacancies. However, average wage rises were at 7.8%, above the rate of inflation. In real terms, this was a 0.6% increase, so the news is not as good as it seems.
Businesses have been increasingly worried about the prospect of a recession and have been cutting back on services in preparation. Computer programming, consultancy and services fell by 3.4% in July, despite three consecutive months of growth just before. Non-essential operations are being reduced to stem financial losses expected to come.
Manufacturing reduced by 0.8% and construction by 0.5%. The services sector fell by 0.5% in July after a 0.2% growth seen the month before. In a country that’s largely driven by services, this has not been good news.
Jeremy Hunt has been more optimistic about this news. Revised figures have put the UK economy in a better place compared to pre-pandemic levels and the IMF has now issued a belief that the economy will grow more quickly than Germany, France and Italy. When it comes to the economic outlook of a country, it’s easier to measure in quarters rather than on a month-by-month basis.