Economy contracts by worse than expected 0.5% in July, official figures show

The UK economy contracted by 0.5% in July, according to early official figures showing a hit from strikes and wet summer weather.

The Office for National Statistics (ONS) said the decline, which was worse than many economists had expected, followed an unrevised 0.5% increase in gross domestic product (GDP) over the previous month.

Its director of economic statistics, Darren Morgan, said of the yo-yo performance: “Our initial estimate for July shows that GDP fell; however, the broader picture looks more positive, with the economy growing across the services, production and construction sectors in the last three months.

“In July, industrial action by healthcare workers and teachers negatively impacted services and it was a weaker month for construction and retail due to the poor weather.

“Manufacturing also fell back following its rebound from the effect of May’s extra Bank Holiday.

“A busy schedule of sporting events and increased theme park visits provided a slight boost.”

The numbers were released against a backdrop of recession fears due to inflation headwinds still facing households and businesses.

They also reflect the impact of the action taken by the Bank of England to control the pace of price increases.

It is facing a delicate balancing act in determining how much steam to take out of the economy through its programme of 14 consecutive interest rate hikes to date.

Its battle against inflation has had a sting in its tail, as the surge in borrowing costs has pushed up mortgage repayments and property rental prices substantially, adding to the financial burden for families.

The Bank is tipped, by financial markets, to impose one more 0.25 percentage point rate hike next week due to its continued worries about the pace of wage growth which is running at a 22-year high.

Policymakers fear that high pay awards will only fuel price growth in the economy in the months ahead, forcing further rate action.

The next inflation figures, due in a week’s time, will also be closely scrutinised and many economists believe there could even be a small lift in the main measure due to rising oil prices.