UK economy grows 0.2% after platinum jubilee dented recovery

Public holidays had an impact on the economy alongside fallout from war in Ukraine

British Union flags on Regent Street in London celebrate the queen's platinum jubilee on June 1. The public holiday for the celebrations had a knock-on effect for the economy. Bloomberg
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The UK's recession-threatened economy rebounded in July, but by less than expected after a hefty fall the previous month, according to official figures.

British gross domestic product grew 0.2 per cent after contracting by 0.6 per cent in June. Economists had expected 0.3 per cent growth.

The Bank of England expects the UK economy to enter recession before the end of the year amid decades-high inflation fuelled by sky-high energy and food bills.

The death of the queen and another holiday for her funeral on September 19 may be enough to tip the economy into recession in the current quarter, analysts at Nomura and Deutsche Bank said. Consumers and businesses are struggling under the weight of soaring inflation and energy bills, even with Prime Minister Liz Truss's package of measures to freeze further increases in natural gas and electricity costs.

The Office for National Statistics (ONS) said the services sector was the biggest driver of the rebound, growing by 0.4 per cent over July.

This followed a 0.5 per cent drop in the sector between May and June.

In the three months to July, GDP was flat compared with the previous three-month period.

“Anecdotal evidence suggests that there may be some signs of changes in consumer behaviour and lower demand in response to increased prices,” the ONS said, regarding a fall in power generation.

June's big decline had been attributed partly to an extra public holiday celebrating the platinum jubilee of late queen Elizabeth II following her 70 years on the throne.

“The feeble 0.2 per cent bounce back in July was driven by weak GDP in June due in part to the loss of working days from the Jubilee long weekend,” noted Yael Selfin, chief economist at KPMG UK.

“More concerning, July's GDP remains below the level seen in May, pointing to an overall contraction over the first two months of summer.

“This ties into a downbeat outlook for the UK economy which could see another shallow recession from the end of this year, driven by the continuing squeeze on households’ income and a rising cost burden for businesses.”

Britain usually has only one public holiday in early summer but the number was doubled for the Jubilee.

Time off work for millions of Britons next Monday means the economy will have had two more public holidays than usual in 2022.

Alice Haine, personal finance analyst at online investment platform Bestinvest, said: “Flattening economic growth in the three months to July was to be expected when you consider the immense challenges the country was facing as the fallout from the war in Ukraine and rising borrowing costs took their toll on the economy. The resulting rises in food, fuel and energy prices sent inflation soaring to a 40-year high of 10.1 per cent in July and forced households and businesses to re-evaluate their expenditure.

“Despite this, there was slight GDP growth in July driven by the services sector, with the UK’s decision to host the Women’s Euro Championship and the Commonwealth Games delivering a positive boost to output. However, the production and construction sectors contracted in July — a reflection of the shifting economy as Britain really started to grasp the sheer scale of the energy crisis and the fact that price rises were not going to reverse any time soon.”

Last month, the Bank of England forecast that Britain would slip into a recession at the end of 2022 and not come out of it until early 2024, due in large part to the hit to living standards from the energy price surge.

Last week, Ms Truss announced a huge handout to households by promising to cap surging energy prices, reducing the risk of a severe hit to the economy albeit at a cost of 100 billion pounds ($116.16 billion) or more to already stretched public finances.

Updated: September 12, 2022, 7:21 AM
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