Recession fears as UK economy shrinks by ‘more than expected’ in July - with strikes & rain behind the decline

The UK economy shrank “more than expected” in July, according to fresh data from the Office for National Statistics (ONS). It said the decline was driven by strike action by teachers and NHS workers which caused a fall in output from the services sector.

This year’s wash-out summer also had a part to play, hitting the construction and retail industries and causing the economy to contract by 0.5 per cent. The figures were worse than analysts had previously forecasted and have been released amid fears of a recession as households and businesses continue to grapple with high inflation rates.

ONS director of economic statistics Darren Morgan said of the weak performance: “Our initial estimate for July shows that Gross Domestic Product (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.”

Despite the drag on the economy in July, Chancellor Jeremy Hunt said the latest figures showed many reasons to be confident about the future and that the UK economy was now on course to grow faster than Germany, France and Italy. Meanwhile, Rachel Reeves, Labour’s Shadow Chancellor, said the new statistics sounded “another dismal day for growth” and that the “Conservatives’ low growth trap” was leaving working people worse off.

The figures also reflect the impact of the action taken by the Bank of England which has been hiking interest rates in a bid to control inflation. Paul Dales, chief UK economist at forecaster Capital Economics said he expected the Bank of England will raise interest rates a final time from 5.25 per cent to 5.5 per cent.