UK economy returned to growth in July with ‘feeble’ 0.2% rise in GDP – business live | Business

UK economy grew 0.2% in July

Just in: The UK economy returned to growth in July.

UK GDP rose by 0.2% in July, the latest data from the Office for National Statistics shows, a smaller increase than expected.

That’s a welcome return to growth, after the economy shrank by 0.6% in June – as the extra bank holidays to mark the Platinum Jubilee hit economic output.

But it could only be a temporary respite, with the cost of living crunch hitting households and businesses this autumn and winter.

More details to follow….

Key events

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EY: UK economic outlook remains very challenging.

The UK’s energy bill freeze announed last week will “greatly reduce” the risk of a deep recession, says Martin Beck, chief economic advisor to the EY ITEM Club.

But even so, the next year will still be very challenging for the economy, as inflation will bite into household incomes:

Beck says:

Households still face a further decline in their real incomes during the second half of this year which, even if some can save less and borrow more, will weigh on consumer spending.

And though business investment may be buoyed by firms spending before the super-deduction finishes, their ability to do so will be compromised by rising costs. As things stand, the economy is unlikely to do more than stagnate over the coming year.”

PwC: UK still on track for recession

Jake Finney, economist at PwC, fears the UK economy will shrink in the July-September quarter – despite the ‘modest’ 0.2% rise in GDP in July.

That would put the economy into recession, he explains:

“The UK economy grew by a modest 0.2% on a month-on-month basis in July, following its 0.6% contraction in June 2022. However, looking beneath the headlines it’s clear this positive growth rate was primarily led by the performance of the services sector. Two of the other main engines of economic growth – production and construction – contracted in July.”

“Consumer-facing services grew by 0.6% in July, following a flat month in June. The sector was helped by record-high temperatures and one-off events, such as the UK’s hosting of the Women’s Euros and the Commonwealth games. This saw the ‘sports activities and amusement and recreation activities’ sub-sector grow by 8.1%.

However, this strong growth rate was partially offset by a fall of 4.5% in other personal service activities, in part owing to the cost-of-living crisis that is starting to weigh on consumer demand.”

“Despite today’s positive growth figures, our expectation is that the UK economy will contract in Q3 2022, following its -0.1% contraction in Q2 2022. This would mean that the UK enters a technical recession for the first time since lockdown restrictions ended.”

Here’s a good summary of today’s GDP report, from Andy Bruce of Reuters:

UK GDP grows 0.2% m/m in July, less than expected (0.4%)

• Weakness centred on industry, construction
• No big bank holiday effect
• ONS says anecdotal evidence of reduction in demand for power because of cost, but was also a hot month

— Andy Bruce (@BruceReuters) September 12, 2022

Women’s EURO Championship and Commonwealth Games lifted growth

England’s Leah Williamson and Millie Bright lifting the Women’s Euro 2022 trophy Photograph: Peter Cziborra/Reuters

The Women’s European Women’s Championship, and the Commonwealth Games in Birmingham, both gave the UK economy a boost in July.

The ‘sports activities and amusement and recreation activities’ sub-sector grew by 8.1% in July, making it the second-largest driver of growth among consumer-facing services.

The Women’s EURO Championship, hosted by the UK, ran through July. It was a successful event with record crowds at a series of games (before being won, dramatically, by England!).

The first few days of the Commonwealth Games fell within July too, and will also have contributed to the sector’s growth.

Overall, consumer-facing services grew by 0.6% in July, following a flat month in June.

The UK #economy grew by 0.2% in July after a 0.6% fall in June. It’s not much (and below expectation) but it’s positive #GDP
Services up, production and construction down
Car sales and repairs a big driver 🚗
Commonwealth Games and Women’s EUROs also contributed ⚽️

— Danni Hewson (@dannihewson) September 12, 2022

Marcus Brookes, chief investment officer at Quilter Investors says the pick-up in growth in July will ease concerns that a recession is on the immediate horizon.

Services saw a month of positive growth, boosted by the Women’s Euros and the Commonwealth Games, while production and construction fell. However, given this data is from July, the outlook could be bleaker given it comes before a potential slowdown in activity during the period of mourning in the UK.

“Ultimately, the next few months are still likely to be a very difficult environment for everyone – governments, corporates and households alike, Brookes adds.

Shortages of workers continued to hold back growth in July.

In today’s GDP report, the ONS says:

Businesses… reported staff shortages as being an issue.

Hotels and hospitality services were particularly badly affected, but comments were also received from manufacturers of health and beauty products, sheet metal fabricators, haulage companies, solicitors, and cleaning companies.

Economic growth has been choppy this year, as this chart of monthly GDP shows:

UK GDP each mo Photograph: ONS

After 0.6% growth in January, the UK economy stagnated in February, then grew 0.1% in March.

April saw a 0.2% fall, before a 0.4% recovery in May – wiped out by June’s 0.6% drop, which meant the economy shrank slightly in Q2.

The big picture – even after July’s modest recovery, is that growth has been mediocre.

KPMG: economy faces downbeat outlook after ‘feeble’ recovery in July

The “feeble 0.2% bounce back in July” was driven by weak GDP in June due in part to the loss of working days from the Jubilee long weekend, says Yael Selfin, Chief Economist at KPMG UK:

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 £170bn 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 focussed on combating the high levels of inflation.”

The UK economy is now 1.1% above its levels in February 2020, before the pandemic hit the economy.

Small uptick for GDP in July: 0.2%. Mainly driven by a boost in services.

“Monthly GDP is now estimated to be 1.1% above its pre-coronavirus (COVID-19) levels (February 2020).”

— Kate Andrews (@KateAndrs) September 12, 2022

UK econony stagnated over the last quarter

The broader picture is that Britain’s economy failed to grow over the last quarter, weighed down by economic headwinds.

GDP was flat in the three months to July compared with the previous three months, the ONS reports.

UK GDP to July 2022
UK GDP to July 2022 Photograph: ONS

The UK’s construction sector shrank again in July too – wth a 0.8% drop in output, after a 1.4% in June 2022.

This was due to a drop in repair and maintenance work.

Power production fell, hitting industrial output

Manufacturing only expanded by 0.1% in July.

And the wider production sector actually contracted again – by 0.3% after a fall of 0.9% in June 2022, due to a fall in output in the electricity, gas, steam, and air conditioning supply.

The ONS says people may have cut back on electricity use following the surge in prices this year.

According to anecdotal evidence from the Department for Business, Energy and Industrial Strategy (BEIS), demand for electricity was 2.3% lower than seen in July 2021 (that may have been influenced by the higher than usual temperatures).

Anecdotal evidence suggests that there may be some signs of changes in consumer behaviour and lower demand in response to increased prices. This is further shown in our recent Consumer price inflation, UK: July 2022 bulletin where electricity prices rose by 54% in the 12 months to July 2022.

Britain’s services sector led the recovery in July, growing by 0.4%

The information and communication sector grew by 1.5% and was the largest contributor to the services growth in July.

UK economy grew 0.2% in July

Just in: The UK economy returned to growth in July.

UK GDP rose by 0.2% in July, the latest data from the Office for National Statistics shows, a smaller increase than expected.

That’s a welcome return to growth, after the economy shrank by 0.6% in June – as the extra bank holidays to mark the Platinum Jubilee hit economic output.

But it could only be a temporary respite, with the cost of living crunch hitting households and businesses this autumn and winter.

More details to follow….

Economy could feel chill from national mourning

Economists fear that next week’s bank holiday for the Queen’s state funeral, and the impact of national mourning, could push the economy nearer to recession.

Growth could be weaker than normal in August, as Monday 19th won’t be a normal working day. That could lead to lost trade at restaurants, bars and concert venues, as people pay their tributes to Queen Elizabeth.

Simon French, chief economist at the City broker Panmure Gordon, said one-off bank holidays in 2002, 2012 and earlier this year had lowered economic output by at least £2bn.

French told the Sunday Times:

“There are few parallels for this moment and that makes forecasting particularly difficult.

We may not simply be talking about an extra bank holiday. There could be a prolonged period of national mourning.”

Some companies, including Selfridges and Liberty, decided to close their stores last Friday as a mark of respect.

Government guidance published last week encourages companies to consider cancelling or postponing events during the period of mourning, especially on the day of the state funeral.

Events, including the TUC Congress , have been postponed, as have some sporting events including last weekend’s football fixtures.

Introduction: UK’s July GDP report in focus

Good morning, and welcome to our rolling coverage of business, the world economy, and the financial markets.

It’s a crunch week for data showing the health of Britain’s economy, and we begin by discovering how the UK performed in July.

The latest UK GDP report, due at 7am BST, is expected to show a return to growth, after the economy contracted by 0.1% in the second quarter of the year.

Some economists are predicting the economy grew by 0.4% in July, after economic activity in June was affected by the Platinum Jubilee, which meant two fewer working days that month.

UK GDP to April-June 2022

Alvin Tan of RBC Capital Markets predicts the economy grew by around 0.3% in July:

The fall in UK June GDP of 0.6% m/m from the extended Jubilee bank holiday was considerably less than expected with some sectors, most notably recreation and hospitality, actually benefiting from the holiday weekend.

A large degree of the impact of events such as June’s extra bank holiday tends to be on the timing of activity with most recovering in the subsequent period. We look accordingly for UK July GDP to bounce 0.3% m/m. We also look for UK Q3 GDP growth of 0.2%

Data due later this week will show the soaring living costs facing households, as my colleague Zoe Wood explains:

City economists are forecasting a further rise in inflation to 10.2% in August when official figures are published on Wednesday, as the rising price of a weekly shop and sky-high energy bills add to the financial pressure on struggling households.

This would mark a modest uptick from the July reading of 10.1%, which was the first time the consumer prices index had risen above 10% since the early 1980s

We also get the latest UK unemployment data tomorrow, and retail sales figures on Friday which may show a drop in spending, as stretched consumers cut back.

The agenda

  • 7am BST: UK GDP report for July

  • 7am BST: UK balance of trade for July

  • 9am BST: European Central Bank survey of monetary analysts

  • 11am BST: NIESR’s estimate of UK GDP in August

  • 1pm BST: India’s inflation and industrial production data

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