UK economy stumbles in July due to strikes and rain

LONDON (Reuters) – The British economy contracted in July at an unexpectedly steep pace after strikes at hospitals and schools, as well as unusually rainy weather, hit output, according to official figures on Wednesday that will add to concerns about the outlook.

The Office for National Statistics said gross domestic product contracted 0.5% in July from June, worse than all forecasts in a Reuters poll of economists that had pointed to a contraction in gross domestic product (GDP). 0.2% compared to June.

Production had risen 0.5% in June and the economy grew 0.2% during the three months to the end of July.

Sterling lost about a third of a cent against the dollar after the data showed that all major sectors of the economy – services, manufacturing and construction – fell in July.

The data underlined signs that the British economy is weakening, perhaps more than the Bank of England had expected ahead of its September interest rate meeting.

Tuesday’s data showed a fastest rise in unemployment rate than the central bank expected, although the Bank of England remains concerned that strong wage growth will fuel persistent inflation.

“The speed of the slowdown could be signaling that a recession is just around the corner,” said Neil Birrell, a fund manager at Premier Miton.

“Either way, it suggests that higher interest rates and persistent inflation are having a more significant effect on the economy.”

However, Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said he doubted Wednesday’s data marked the start of a downward trend, given the one-off factors behind the drop in output.

The ONS said the health sector was the biggest driver of the 0.5% drop in service output and cited a further strike by doctors which led to almost 200,000 appointments cancelled. Schools in England also suffered strikes.

Unusually wet weather in July hurt retail and construction sector output, which fell 0.5%, the ONS said.

Wednesday’s data does not include recent, substantial increases. reviews to the performance of the British economy until the end of 2021.

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