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Economy returns to growth with 0.2% rise in GDP

The UK economy edged back to growth in July with output up by an estimated 0.2 per cent in the month, following a 0.6 per cent fall in June.

It means gross domestic product, the main measure of output, stagnated at 0 per cent in the three months to the end of July. City economists had forecast 0.4 per cent growth over the three months.

Monthly GDP is now estimated to be 1.1 per cent above the pre-Covid level of February 2020.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The economic recovery has petered out, but has not gone into reverse yet.”

The services sector grew by 0.4 per cent in July, after a fall of 0.5 per cent in June, and was the main driver to the rise in GDP. Information and communication grew by 1.5 per cent and was the largest contributor to the services growth in July.

Production fell by 0.3 per cent after a fall of 0.9 per cent in June 2022. This was mainly because of a fall of 3.4 per cent in electricity, gas, steam, and air conditioning supply.

Construction also fell in July 2022 by 0.8 per cent, after a fall of 1.4 per cent in June; the decrease in monthly construction output came solely from a fall in the repair and maintenance work, which declined by 2.6 per cent.

Output in consumer-facing services grew by 0.6 per cent, following flat growth in June. Consumer-facing services remained 4.3 per cent below their pre-coronavirus levels.

One of the main drivers of low growth over spring was a fall in healthcare activity driven by the winding down of the coronavirus Test and Trace programme. Growth was also dented by the extra bank holiday for the Platinum Jubilee celebrations in June.

Bank holidays bring about a rise in spending on hospitality and leisure, but it is typically not enough to offset the fall in output across other sectors.

Before the announcement of the government’s energy bills support package on Thursday, the Bank of England warned that the UK was heading into a 15-month recession, which would knock more than 2 per cent off total GDP, beginning this winter.

Inflation is running at a 40-year high of 10.1 per cent, driven by the soaring cost of energy bills. Policymakers are concerned that the fall in real incomes, which is the value of pay packets after adjusting for the impact of inflation, will reduce consumer spending and push the country into an economic downturn.

Some analysts have said a recession now looks unlikely because the freezing of household energy bills at £2,500 for two years, along with the £400 cash payment promised by the former chancellor, Rishi Sunak, will alleviate the pressure on household incomes and leave people with more money to spend.

However, the period of national mourning following the death of the Queen and the bank holiday for her funeral are expected to dent output in the third quarter.

Yael Selfin, chief economist at KPMG, said: “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. 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.”

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