(Bloomberg) — Britain’s economy contracted at its fastest pace in seven months as cloudy weather curbed spending and strikes hit the public sector, erasing the previous month’s strength.
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Gross domestic product fell 0.5% after rising 0.5% in June, the Office for National Statistics said on Wednesday. Economists had expected a decline of 0.2%.
The figures are further evidence that the UK economy is losing momentum amid a sharp rise in borrowing costs. It could give some Bank of England policymakers pause as they decide later this month whether to raise interest rates again to combat inflation.
Money markets are pricing in a quarter-point rise to 5.5%, with the possibility of a further rise by the end of the year. However, BOE Governor Andrew Bailey has signaled that the most aggressive rate hike cycle since the 1980s is almost complete.
The dominant services sector fell 0.5% in July, with cool and rainy weather depressing retail sales during the month. Work performance was also affected as doctors, teachers and railway staff quit their jobs due to their pay disputes with the government.
Data on Tuesday showed that the labor market, which is being closely watched by the BOE for signs of persistent inflation, is cooling.
The latest GDP estimate could be revised later this month when the ONS is due to publish new estimates in line with its Blue Book changes.
These changes rewritten the narrative of the pandemic, so that the economy at the end of 2021 was larger than previously thought and above pre-coronavirus levels. However, they did not provide any insight into how the economy has performed since then, a period of rising inflation and interest rates.
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A decline in output in July was largely planned for and is expected to do little to change expectations that the economy as a whole will post modest growth in the third quarter. The longer-term outlook is for stagnation, with Bloomberg Economics even predicting a shallow recession starting later this year as households grapple with sharp increases in debt costs.
That’s bad news for Prime Minister Rishi Sunak, who faces a general election next year as his Conservative Party lags far behind the Labor opposition in opinion polls.
– With support from Joel Rinneby and Mark Evans.
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