UK economy shrinks 0.5% in July amid summer washout and strikes

July posed a challenge for the UK economy as it saw a decline of 0.5% in its gross domestic product (GDP), due in part to a summer washout affecting the construction and retail industries.

This downturn is surprising, coming after a 0.5% growth observed in June.

The decline is larger than expected; economists had anticipated a contraction of around 0.2%.

GDP measures the value of goods and services produced in the UK. It estimates the size and growth of the economy.

Industrial action notably affected the health, education, and rail sectors, leading to their monthly decline. Additionally, there were signs that employment agencies saw reduced demand from the health sector due to the NHS-related strikes.

July 2023 experienced unusually wet weather, with rainfall at 170% of the average, making it the wettest July since 2009, according to the Met Office. This followed a record-warm June. The adverse weather had a negative effect on retail output, construction, and outdoor accommodation.

The latest ONS data, published this morning, show that services output, a vital component of the UK economy, declined by 0.5% in July.

It had previously seen a 0.2% growth in June 2023. Services are pivotal, and their decline had a significant impact on the GDP for July.

Interestingly, no growth was observed in consumer-facing services this month, contrasting with the 0.5% surge in the previous month.

The production sector wasn’t spared either, facing a pronounced decline of 0.7%, especially following an impressive 1.8% growth in June.

Conversely, the construction sector followed the broader trend, with a 0.5% drop, succeeding its 1.6% rise in June.

In the broader economic landscape, the three months leading up to July 2023 painted a different scenario.

The GDP saw a modest 0.2% growth, with all three major sectors recording growth.

Specifically, production led the way with a 0.6% increase, while both the services and construction sectors grew by 0.1% each.

Darren Morgan, the Director of Economic Statistics Production & Analysis at ONS, highlighted that while the July data isn’t favourable, the overall economic perspective over the past three months is brighter.

Morgan noted that industrial action, particularly by healthcare professionals and educators in July, affected the services sector.

A mix of inclement weather and the effect of May’s additional Bank Holiday also made construction and retail sectors weaker.

On a more positive note, a flurry of sporting events and an uptick in theme park visits somewhat boosted the economy.

He said: “Our initial estimate for July indicates that GDP fell; however, the broader outlook appears more upbeat, with the economy seeing growth across the services, production, and construction sectors over the last three months.”

“In July, industrial actions by healthcare professionals and teachers adversely affected services, and construction and retail sectors struggled due to the adverse weather. Manufacturing also retreated after rebounding from the effects of May’s extra Bank Holiday.”

“However, a packed calendar of sporting events and more theme park visits provided a slight economic uplift.”

Commenting on today’s GDP data, TUC General Secretary Paul Nowak said: