Official figures released on Wednesday revealed that the British economy contracted by 0.5% in July due to a combination of factors. These included strikes, particularly among junior doctors starting their careers, and unusually wet weather.
The Office for National Statistics (ONS), noted that the strikes negatively impacted the healthcare sector, while the exceptionally rainy July, ranking as the sixth wettest on record, affected retailers after a strong June boosted by warm weather.
The ONS specifically cited an uptick in industrial action by doctors, resulting in the cancellation of nearly 200,000 appointments. Additionally, strikes in schools in England further contributed to this downturn.
Despite the fluctuating monthly growth figures, most economists are not overly concerned about the possibility of a recession, although they expect growth to remain modest.
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On Tuesday, data indicated a faster rise in the unemployment rate than anticipated by the central bank. However, the Bank of England remains concerned that robust wage growth could contribute to persistent inflation.
“The speed of the slowdown could be indicating that recession is around the corner,” noted Neil Birrell, a fund manager at Premier Miton.
“Either way, it does suggest that higher interest rates and sticky inflation are having a more significant effect on the economy.”
James Smith, an economist at ING, acknowledged the possibility of a recession but stated that the economy still appears to be growing, albeit at a slow pace.
Nevertheless, Samuel Tombs, the chief UK economist at consultancy Pantheon Macroeconomics, expressed skepticism that the data released on Wednesday signaled the initiation of a declining trend, as it appeared to be influenced by unique factors causing the decrease in output.
The Office for National Statistics (ONS) noted that the atypical rainfall in July had a negative impact on both retail and construction sectors, leading to a 0.5% decline in the latter.
It’s worth mentioning that the data released on Wednesday does not incorporate the significant upward revisions made to the performance of the British economy, particularly up to the conclusion of 2021.
Despite the economic contraction in July, financial markets anticipate that the Bank of England will raise interest rates once again next week, primarily due to the elevated inflation rate of 6.8%, well above its 2% target.
The prevailing expectation among economists is that the central bank will increase its main interest rate by a quarter of a percentage point, reaching a 15-year high of 5.5%.