The UK economy grew 0.2% in July after a 0.6% fall in June, rising 1.1% above pre-Covid levels in February 2020.
However, UK GDP growth failed to meet analyst expectations, spelling trouble for the country as the cost of living crisis tightened its grip on household budgets.
The Office of National Statistics (ONS) noted GDP was flat in the three months to July compared to the previous three months.
“July’s rather anaemic growth came in below expectations, a factor which will add to concerns that the UK is slow marching towards recession,” said AJ Bell financial analyst Danni Hewson.
“Despite the package of support for households, which has just been announced by the government, the cost of living crisis hasn’t magically disappeared.”
“Energy costs are just one part of the equation – food prices, fuel prices and pretty much every single service we use has gone up and, even if inflation doesn’t peak at those eyewatering levels we’d been warned of, budgets are still very tight.”
The services sector rose 0.4% in July after a 0.5% drop in June, with information and communications growing 1.5% as the largest contributor to services growth over the month.
Meanwhile, production declined 0.3% following a 0.9% fall in June, primarly linked to a 3.4% decrease in the supply of electricity, gas, steam and air conditioning.
“It’s not surprising that the ONS flags up anecdotal evidence that demand for electricity fell in July,” said Hewson.
“Businesses and consumers have been making changes, cutting back, altering habits, preparing for those long winter days.”
The economy also saw a 0.8% decrease in construction following a 1.4% drop in June, with the decline in monthly output driven solely by a 2.6% fall in repair and maintenance.
“High prices for materials like concrete and bricks continue to be a huge issue for the construction sector and it is interesting that repair work and maintenance have dragged the sector down,” said Hewson.
“People will try and make do if they’re worried about cash, hoping that putting repairs off until tomorrow will result in lower quotes as inflation cools.”
The ONS confirmed a 0.6% growth in consumer-facing services output after flat growth in the previous month. However, consumer-facing services remained 4.3% below pre-Covid levels over July.
“And finding staff to do the jobs that need doing is still a huge concern across the board. How does a business take advantage of surges in demand if they don’t have enough workers?” said Hewson.
However, the cost of living crisis might soon be felt in the labour market as winter approaches, with the harsh season ahead sparking a potential sink-or-swim environment where employers chuck workers into the cold in a move to survive the energy costs surge.
“There are signs that the jobs market is relaxing and evidence that some businesses are now actively letting workers go as they try and create some kind of cushion going into the winter months,” said Hewson.
“Will the energy price freeze be enough to keep the economy chugging forward, or has intervention come too late to settle nerves?”
“Will consumers relax their tight hold on the purse strings enough now they’re no longer faced with the spectre of continually rising energy bills?”
The support package from Prime Minister Liz Truss might have avoided the worst of the energy crisis, however it remains to be seen if the energy price cap freeze will be enough to coax customer wallets out of their grip once winter arrives.
