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

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.”

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.”

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.

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.

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 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.

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.

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…