UK ‘still at risk of recession’ despite Women’s Euros and Commonwealth Games lifting July GDP – business live | Business

The weather was hot but the economy was lukewarm. As temperatures in the UK rose above 40 degrees centigrade for the first time, growth in July remained tepid.

To be sure, the economy expanded, but some boost to activity was expected after the hit to growth in June caused by the double bank holiday to celebrate the late queen’s platinum jubilee.

Given that gross domestic product – the official gauge of how big the economy is – contracted by 0.6% in June, the 0.2% bounce back in July was unimpressive, particularly given the boost provided by the Euro 2022 football tournament and the Commonwealth Games.

Over the three months to July, a better guide to the trend than one month’s figures taken in isolation, the economy moved sideways, showing zero growth….

Here’s Larry’s full analysis:

Full story: UK economy grows more slowly than expected amid cost of living crisis

Richard Partington

The UK economy grew more slowly than expected in July as worker shortages and soaring costs weighed on activity amid the heightened risk of recession, my colleague Richard Partington reports.

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

City economists had forecast a stronger 0.4% recovery after the fall a month earlier.

Reflecting weakness in the economy, GDP growth was flat over the three months to July, with a slump in the UK’s dominant service sector offset by stronger activity in industrial production and construction.

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

She said:

“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.”

The figures come amid growing concern over the strength of Britain’s economy as soaring living costs weigh on households’ spending power. The Bank of England has warned high inflation fuelled by rising energy bills will probably plunge the economy into a lengthy recession this winter.

Here’s the full story:

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 football 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.