UK economy stumbles in July as strikes and rain weigh

By Andy Bruce and David Milliken

LONDON (Reuters) -Britain’s economy contracted in July at an unexpectedly sharp rate after strikes in hospitals and schools as well as unusually rainy weather weighed on output, according to official figures on Wednesday that will add to worries about the outlook.

The Office for National Statistics said gross domestic product shrank 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) of 0.2% from June.

Output had risen 0.5% in June, and the economy grew 0.2% over the three months to the end of July.

Sterling shed around a third of a cent against the dollar on the data, which showed all major sectors of the economy – services, manufacturing and construction – declined in July.

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

Data on Tuesday showed a faster rise in the unemployment rate than the central bank expected, although the BoE remains worried that strong wage growth will fuel persistent inflation.

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

“Either way, it does suggest that higher interest rates and sticky 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 falling trend, given the one-off drivers of the drop in output.

The ONS said the health sector was the biggest driver behind the 0.5% drop in services output and cited increased industrial action by doctors which led to nearly 200,000 cancelled appointments. Schools in England also saw strikes.

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

Wednesday’s data does not include recent, substantial upward revisions to the performance of Britain’s economy up to the end of 2021.

(Reporting by Andy Bruce and David Milliken; Graphic by Sumanta Sen; Editing by William James and Alison Williams)