The UK’s monthly real gross domestic product (GDP) fell by 0.5% in July, new data from the Office for National Statistics (ONS) has revealed.
This drop comes following a previous growth of 0.5% in June 2023.
The research revealed that the services output was down 0.5% in July 2023 and was the main contributor to the fall in GDP in July.
Production output saw a slight downturn, falling by 0.7%, while the construction sector also saw a fall of 0.5%, after growth of 1.6% in June.
What’s more, the consumer-facing services showed signs of stagnancy, experiencing no growth in July 2023 following growth of 0.5% the month prior.
However, the data also reveals a slight growth in the broader economy, reporting that GDP increased by 0.2% in the three months to July 2023, with growth in all three main sectors.
Reaction:
Nicholas Hyett, investment analyst at Wealth Club:
“The economy shrunk 0.5% in July, reversing a similar level of growth a month earlier.
“Although some positive results from the arts and sports sectors may be a bit of a surprise after one of the wettest July’s on record, the services sector was generally weak.
“Industrial action in the NHS explains a lot of the move, hitting output in health and social work, but there’s weakness across business facing services.
“Corporate weakness is also reflected in the weak manufacturing data, suggesting that while consumers are still willing to splash the cash to some degree, businesses are spending less and industrial demand is weak.
“Together with a decline in job vacancies announced earlier in the week, it suggests to us that the UK economy is slowing.
“The UK’s hokey cokey economy isn’t making life easy for businesses or central bankers.
“With growth bouncing up and then down and interest rate rises ruled in and then out, forward planning is difficult.”
“That tends to make businesses nervous and keen to preserve cash – bad news for future economic growth and investment.”
Riz Malik, founder and director at R3 Mortgages:
“The UK economy continues to limp forward waiting to be put out of its misery.
“The poor health of the economy will be a significant factor during discussions at the next Monetary Policy Committee meeting about the base rate.
“Bad data for the economy could mean good news for borrowers.
“This, in turn, could provide a boost to the property market. Another day of bad news for the incumbents of No 10 and No 11 Downing Street.”
Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial:
“UK Plc is in free fall as the economy takes a huge step back.
“There’s no need to play ‘Where’s Wally’ as we know he’s heading up the Bank of England.
“Despite this poor data, Andrew Bailey is expected to hike interest the base rate once more this month.
“Data like this should give his Monetary Policy Committee cause to pause their assault on inflation as the economy creeks at the seams.
“Inflation is set to come down sharply as previous rate hikes filter into the mix.
“The economy, on the other hand, cannot tolerate much more before a sharp recession becomes a reality.”
Justin Moy, managing director at EHF Mortgages:
“I think the only people pleased by July’s poor GDP data will be mortgage borrowers, as this may encourage the Monetary Policy Committee to slow or suspend further increases.
“However, one month’s data doesn’t suddenly change everything, but if this trend continues then rates will surely have to come down to stimulate growth.”
John Choong, equity research analyst at Investing Reviews:
“July’s negative GDP read could provide some relief for investors and lenders alike as the Bank of England could stop its rate-hiking cycle as soon as November.
“With Andrew Bailey and co not willing to risk a recession unravelling after their disastrous response to inflation, the Monetary Policy Committee may view the recent contraction in services PMI as a forewarning that overtightening could spur undesired consequences.
“As such, it’s more likely than not that markets will look at Wednesday’s data favourably, for now.
“Nonetheless, sentiment can change in a heartbeat if next week’s inflation data comes in hotter than expected and could undermine any hope that a peak in the bank rate is near.
“As such, investors ought to pay more attention to next week’s CPI data rather than today’s GDP print, which serves as a bit of white noise in the bigger inflation picture.”
Peter Stamford, director and lead adviser at Moor Mortgages:
“The UK economy appears to be facing some challenges, as the recent decline in GDP suggests that tough times may lie ahead, especially for the service and retail sectors.
“This data can be interpreted as a temporary relief, indicating a potential pause in the Bank of England’s interest rate hikes, however, it can also be interpreted as an indicator of an imminent recession.
“The upcoming inflation data will now be crucial, as it could determine the Bank of England’s next steps and influence Downing Street’s decisions.”
Charles Breen, founder and director at Montgomery Financial:
“This data makes for bleak reading.
“This is especially the case given that we have been lagging behind our peer nations on growth for well over a decade.
“There is a lot of systemic issues with the UK economy at the moment which is scuppering growth, just at a time when we desperately need it.
“We didn’t get the growth bounce back that most economies did post-Covid and Wednesday’s data reflects this.
“The Government ought to focus on addressing the nation’s lagging business investment, which is a significant factor in the UK’s productivity gap with other G7 economies.
“Rising interest rates have hit homeowners and renters hard, impacting discretionary spending and affecting small businesses that rely on consumer demand.
“We are a predominantly service-based economy and if consumer spending and confidence is hit then so too is our GDP.
“The Bank of England’s mismanagement of interest rates hasn’t helped people’s confidence or the wider economy.”
Ranald Mitchell, director at Charwin Private Clients:
“Services, production and construction output all contracted in July following respectable data in June.
“Reading between the lines, it seems like the UK economy is close to a tipping point, with the coming months determining which way it will go.
“Another tricky meeting for the Monetary Policy Committee this month as they decide whether to press on in the battle against inflation or give businesses and the economy a breather.”
Graham Cox, founder at Self Employed Mortgage Hub:
“Andrew Bailey and the Bank of England may be given pause for thought with these latest GDP figures.
“Yes, there were mitigating factors like the poor weather and industrial action, but a 0.5% fall in GDP in one month is quite alarming and shows the economy is weakening and potentially heading into recession.
“This could mean there’s no base rate increase on September 21st. If that happens, it’s likely mortgage rates will continue to fall.”
