- Written by Michael Reese
- Business correspondent, BBC News
Image source, Getty Images
The UK economy contracted more than expected in July, driven by strikes by NHS workers and teachers, according to official figures.
The Office for National Statistics (ONS) said the wet weather also affected the construction and retail industries, causing the economy to contract by 0.5%.
These numbers were worse than analysts had expected, and continue a trend of weak economic growth in the UK.
But the Office for National Statistics said the “broader picture” for the country looked “more positive”.
Darren Morgan, director of economic statistics at the ONS, said that while July saw the economy contract, output in the services, production and construction sectors grew by 0.2% in the three months to July.
He said a “busy schedule” of sporting events and increased park visits had provided a slight boost to the economy.
The pressure on the economy in July was partly due to lower output from the services sector, which includes the NHS. The ONS said the decline was driven by labor strikes, with senior doctors and radiographers on pay strike for two days each, and junior doctors out for five days a month.
Chancellor Jeremy Hunt said the latest economic figures showed “many reasons to be confident about the future” and that the British economy was now on track to grow faster than Germany, France and Italy.
The figure produced by the Office for National Statistics to show the health of the UK economy is known as GDP.
GDP is a measure – or attempt to measure – all the activities of businesses, governments and individuals in a country.
If the number is increasing, it means the economy is growing and people are doing more work and becoming a little richer, on average.
But if GDP falls, the economy shrinks, which could be bad news for businesses. If GDP declines for two consecutive quarters, it is usually defined as an economic recession.
The UK is not currently in a recession, but there have been concerns about poor economic performance in recent months.
Rachel Reeves, Labour’s shadow finance minister, said the new statistics released on Wednesday represented “another dismal day for growth” and the Tories’ “low growth trap” was “leaving workers worse off”.
Annie Rose, owner of Cumbrian Heavy Horses, a riding company, said the wet weather in July had affected her business because about 40% of her customers were tourists.
“When the weather is constantly bad, they will go and do other things inside or they will go on low-level walks around the lake, and it won’t cost them a lot of money. Don’t sit on a horse in heavy rain,” she told the BBC.
She said many recreational riding stables had closed in the UK “simply because riding is too expensive” and because keeping animals had become too expensive. She said the cost of hay to feed her horses had tripled from around £4,000 to more than £12,000 last winter, putting further pressure on her budget.
Paul Dales, chief UK economist at forecasting firm Capital Economics, noted that July’s economic figures could mean a “moderate recession” has begun. But he added that he expected the Bank of England to raise interest rates for the final time from 5.25% to 5.5%.
The bank raised interest rates in an attempt to control the rate at which UK consumer prices rise, known as inflation.
The economic theory behind increasing interest rates is that by making it more expensive for people to borrow money, they will then have less surplus cash to spend, which means households will buy fewer things and so price rises will slow down. But it’s a balancing act because raising interest rates too aggressively could cause a recession.
Inflation fell to 6.8% in the 12 months to July, but the level is still more than three times the bank’s 2% target.
But with interest rates rising to their highest level in 15 years, the cost of borrowing, including loans such as mortgages, has risen, although people with savings should benefit and get better returns on their money.
The latest GDP figures released are an estimate of how the economy is performing by the Office for National Statistics. It produces one of the fastest estimates of GDP for the world’s major economies, about 40 days after the quarter in question.
At this point, only about 60% of the data is available, so the number is revised as more information comes in and could change later.
Darshini David, BBC News’ chief economics correspondent
As much as we all like to complain about the weather, there was more than just abnormally heavy rain impacting July’s GDP numbers. While this is just an initial stab at estimating activity based on limited data, and could be just a passing blip, the numbers are a reminder that we may be looking at a slowing economy.
Strikes – in health and education – affected certain sectors. This year’s public holiday pattern has caused some fluctuations in the monthly numbers as well. A wetter July for activity may be inevitable after an economically torrid June. Such fluctuations are why economists prefer to look at trends on a quarterly basis – and activity remains brisk between May and July as a whole.
It was consumer spending that drove the resilient economy in the first half of the year – and that continued in some areas in July. Attendance at sporting activities and festivals was good. But is it partly down to real grit, a determination to brave the weather after spending so much money on tickets, and treat ourselves after years of lockdown?
Or could it be a final splash? As fixed-rate mortgage deals end, more than half of residential mortgage holders and a larger segment of landlords with buy-to-let loans are exposed to higher interest rates, with monthly repayments typically rising by hundreds of pounds.
The data coming in will be scrutinized just as much as meteorologists do their weather charts.