The UK economy is expected to have contracted slightly in July, with analysts at Investec and Pantheon Macroeconomics both predicting that UK GDP fell in July by 0.1%, dragged down by weak retail sales and rising household energy costs. The Office for National Statistics (ONS) is due to publish the latest growth figures on 11 September.
The GDP figures cover one of the most politically charged months in recent British history. Andy Burnham was appointed Prime Minister during July, and according to Kansas Public Radio, he became the UK’s seventh prime minister in a little over a decade since Britons voted in June 2016 to leave the European Union. A 0.1% contraction in his first full month in office is not the economic backdrop any incoming prime minister would choose.
What happened to UK GDP in July and why it matters
The short answer is a hangover from an unusually strong June. The UK economy grew by 0.3% in June, buoyed by hospitality and leisure businesses benefiting from football fever and a prolonged spell of hot weather. That brought total growth in the second quarter of the year to 0.4%. Analysts now think that stronger-than-expected June activity may have pulled forward spending that would otherwise have taken place in July, leaving the following month looking comparatively flat.
Investec analysts pointed to soft retail sales as early evidence of this slowdown, and also highlighted the 13% uplift to the energy price cap as a factor likely to have weighed on household budgets. In a note, they said: ‘After a positive first half of the year, where the UK economy actually outperformed the rest of the G7, growing by 1%, we expect the third quarter will begin with a weaker performance.’ They added that the rise in utility bills ‘would have had a dampening effect.’
Robert Wood of Pantheon Macroeconomics reached the same headline conclusion, predicting a 0.1% decline for July and forecasting that growth in the third quarter overall will slow to 0.2%. Wood said large parts of the services sector are likely to have seen declines that dragged on the economy’s overall performance. Retail and wholesale activity, he predicted, probably slid by 0.3% for the month.
Not everything pointed downward. Wood also expected ‘a surge in accommodation and food services output in July’ driven by England’s World Cup run and continuing warm weather, which he said would more than offset the retail weakness in that sub-sector.
A ‘tale of two consumers’ as World Cup spending shifts rather than grows
Thomas Pugh, chief economist at RSM UK, offered a similar diagnosis. ‘Services are likely to have been a tale of two consumers,’ he said. ‘England’s World Cup run should have delivered a strong month for pubs, restaurants and hotels, but a 0.5% fall in retail sales suggests households changed where they spent, rather than opening their wallets wider, spending more money over the bar, but less at the tills.’
In other words, people went out more but cut back elsewhere, meaning the World Cup provided a lift to one part of the economy while quietly deflating another.
Burnham’s political start meets an uncertain economic picture
The economic data lands at a delicate moment for the new Prime Minister. According to KTRE, Burnham secured nominations from 379 of the 403 Labour lawmakers in the House of Commons before taking office, underlining the scale of his internal mandate. He also won the by-election in the constituency of Makerfield by a wide margin, according to Deutsche Welle, before entering Downing Street.
On taking office, Burnham pledged that his government would be ‘a circuit breaker for Britain, bringing forward the biggest changes in the last 40 years.’ Whether the economy cooperates with that ambition may depend partly on whether the July dip proves to be the brief correction analysts expect, or the opening of a more sustained soft patch heading into autumn.
The ONS releases the July GDP data on 11 September, at which point the picture will become clearer.
