UK economy growing slower than expected amid cost of living crisis | Economic growth (GDP)

The UK economy grew more slowly than expected in July as labor shortages and rising costs weighed on activity amid heightened risk of recession.

The Office for National Statistics said gross domestic product (GDP) rose 0.2% in July after falling sharply by 0.6% in June, when the extra bank holiday for the Queen’s platinum jubilee led to a drop in activity .

City economists had forecast a stronger 0.4% recovery after the fall a month earlier. Reflecting the weakness in the economy, GDP growth was flat in the three months to July, with a slump in the UK’s dominant services sector being offset by stronger activity in industrial production and construction.

Yael Selfin, chief economist at KPMG UK, said the “weak” growth rate in July suggested the economy had remained smaller than in May, reflecting a weak summer amid rising concerns about the cost of living.

“This is linked to a gloomy outlook for the UK economy, which could experience another mild recession from the end of this year, driven by continued pressure on household incomes and a rising cost burden for businesses,” she said.

The figures come amid growing concerns about the strength of the UK economy as rising living costs weigh on households’ spending power. The Bank of England has warned that high inflation, fueled by rising energy bills, is likely to plunge the economy into a protracted recession this winter.

In her first week as Prime Minister, Liz Truss announced plans to freeze household energy bills and support businesses in a package of measures to cushion the blow of more than £150bn worth of rising prices. Economists expect the support is likely to prevent a higher peak in inflation and lessen the severity of the looming recession.


It comes as companies scale back events during the national period of mourning following the death of Queen Elizabeth II last week, while out of respect the bank delayed a decision on Thursday’s rate hike by a week to September 22. With inflation rising, the central bank is expected to raise the cost of borrowing by at least 0.5 percentage points from the current 1.75%, despite rising growth risks.

Economists said the extra bank holiday for next week’s Queen’s funeral could weigh on growth in September as the hospitality and tourism sectors would hardly benefit while many businesses shut down.

Samuel Tombs, chief economist at British consultancy Pantheon Macroeconomics, forecast a 0.2% fall in GDP for September. “This suggests that a technical recession — broadly defined as two-quarters of contracting GDP — is on the brink,” he said.

The service sector was boosted in part by the UK hosting both the Women’s Euro 2022 competition and the Commonwealth Games. Photo: Harriet Lander/Getty Images

According to the latest ONS snapshot, record high temperatures in July impacted the economy, with the weather cited as a reason for increased sales in ice cream making, amusement parks and water cooler sales.

The services sector grew by 0.4% overall, partly boosted by the UK hosting both the Women’s Euro 2022 competition and the Commonwealth Games.

In what was the hottest month since 1884, with the UK surpassing 40C for the first time, the manufacturing sector also saw a sharp drop in activity due to reduced gas and power generation, according to the ONS.

With inflation at its highest since the 1980s, driven by rising energy costs during the Russian war in Ukraine, high prices hit the construction sector, where activity fell 0.8% in July after a 1.4% drop % in the month before.

Above all, the prices for concrete, plaster, bricks, sand, gravel and asphalt caused problems for the industry and slowed down the industry’s economic recovery from the Covid pandemic despite sustained construction demand.

Jake Finney, economist at accounting firm PwC, said: “Despite today’s upbeat growth numbers, we expect the UK economy to contract in the third quarter of 2022, after contracting 0.1% in the second quarter. This would mean the UK slipping into a tech recession for the first time since lockdown restrictions ended.”

About Nina Snider

Check Also

UK heads for recession as GDP falls 0.2% between July and September

B Britain’s ailing economy was headed for recession today, as the latest official data showed …