The UK economy edged back to growth in July with output up by an estimated 0.2 per cent in the month, following a sharp 0.6 per cent fall in June. The modest rebound 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, and warned that the economy remains at risk of dropping into a «shallow» recession as the cost of living crisis hits households and businesses. Production fell by 0.3 per cent after a fall of 0.9 per cent in the previous month.
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 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 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. «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. «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. 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 less likely 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. »
When looking at the last three months together, it shows the economy flatlining as the impact of higher inflation works its way through the system. «Consumer spending was reasonably strong, as hot weather, a strong sporting schedule and holiday bookings boosted retail and recreation activities.»Set against this is weakness in some parts of the manufacturing sector, although it is notable that this is concentrated in pharmaceutical production, which would be expected to be more volatile coming out of a pandemic. The data also shows early signs of reduction in demand for energy, possibly because of the higher prices. «The key judgment the Bank of England will make when it meets on Thursday is whether an essentially flat economy is sufficient to squeeze homegrown inflation out of the system or whether further tightening is needed».
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 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 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. «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. «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. 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 less likely 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. »
When looking at the last three months together, it shows the economy flatlining as the impact of higher inflation works its way through the system. «Consumer spending was reasonably strong, as hot weather, a strong sporting schedule and holiday bookings boosted retail and recreation activities.»Set against this is weakness in some parts of the manufacturing sector, although it is notable that this is concentrated in pharmaceutical production, which would be expected to be more volatile coming out of a pandemic. The data also shows early signs of reduction in demand for energy, possibly because of the higher prices. «The key judgment the Bank of England will make when it meets on Thursday is whether an essentially flat economy is sufficient to squeeze homegrown inflation out of the system or whether further tightening is needed».
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