In July, the British economy displayed a notable lack of growth, remaining dormant after a similar performance in June, as declines in both production and construction sectors overshadowed a modest recovery in services. The UK’s monthly gross domestic product (GDP) showed no change for July, missing analysts' consensus expectation of a 0.2% growth, as reported by the Office for National Statistics.
Year-on-year, however, the economy did grow by 1.2%, signifying an improvement from the previous 0.7% expansion, although it fell short of the anticipated 1.4% gain. The services sector has reclaimed its position as the primary driver of the UK economy, contrasting sharply with June, which saw production at the forefront.
In July, services output ticked up by 0.1% month-over-month, recovering slightly from a 0.1% decrease in June. This subtle uptick in services was fueled by growth in computer programming, consultancy, and related sectors, which provided a boost to the information and communication services category. On the flip side, professional, scientific, and technical services led to a contrary trend, as these sectors experienced a reduction of 1.3% in services output for July, thereby concluding a five-month streak of growth.
Despite this mixed economic picture, Liz McKeown, director of economic statistics at the Office for National Statistics, provided some perspective by indicating that the longer-term strength of the services sector resulted in overall growth over the preceding three months. Conversely, the production sector has returned to contraction, recording a monthly decline of 0.8% in July, a stark reversal from the 0.8% increase observed in June.
This downturn was significantly influenced by a notable 1% drop in manufacturing, which emerged as the largest detractor from industrial production. Further contributing to the decline were reductions in other sectors: a 1.7% fall in electricity, gas, steam, and air conditioning supply, alongside a 0.7% decrease in water supply, sewerage, waste management, and remediation activities.
Interestingly, the mining and quarrying sector managed to outperform by expanding 3.9%. Similarly, construction output faced challenges, decreasing by 0.4% in July and erasing the prior month’s 0.5% growth. This regression in construction was attributed to reductions in both new construction projects and repair and maintenance activities, resulting in five of the nine construction sectors undergoing contraction this July. Analysts from Bank of America suggested that while data from the UK economy has been mixed, concerns about persistent inflation are likely to remain at the forefront of the Bank of England's (BoE) considerations.
They forecast that the BoE will maintain its current stance in the upcoming policy meeting, anticipating any rate cuts may be slow and gradual, with the next expected adjustment coming in November. They noted, 'Strong employment growth, ongoing inflation risks, and cautious guidance from the Monetary Policy Committee (MPC) in August suggest a lengthy easing cycle ahead.' In summary, while there are mixed signals from the UK economic landscape, the reliance on the services sector for overall growth remains evident, amidst challenges faced by production and construction that could impact future fiscal policies..