UK Economy Suffers Summer Setback, Raising Recession Fears

Strategic Insights -

The UK economy took a 0.5 per cent hit in July, with experts attributing the decline to doctors' and teachers' strikes and the wet weather. This setback has raised recession fears, with Goldman Sachs cutting its forecast for UK growth this year from 0.5 per cent to 0.3 per cent. The Bank of England, which has hiked interest rates 14 times since December 2021, is expected to raise rates again to 5.5 per cent next week, despite warnings from experts that this could further damage the economy.

Key Takeaways:

  • The UK economy shrunk by 0.5 per cent in July, with experts blaming doctors' and teachers' strikes and the wet weather.
  • Goldman Sachs cut its forecast for UK growth this year from 0.5 per cent to 0.3 per cent, citing the economic setback.
  • The Bank of England is expected to raise interest rates again to 5.5 per cent next week, despite warnings from experts that this could further damage the economy.
  • The decision on how far to hike interest rates is likely to provoke splits among the Bank's nine rate-setters, with some arguing for caution to avoid further economic damage.
  • Industrial action by NHS staff, teachers, and rail workers all took their toll in July, while the wet weather hurt the retail and construction sectors.
  • Some experts believe the speed of the slowdown could indicate that recession is around the corner, while others doubt that July's setback marks the beginning of a downturn.
  • Neil Birrell, a fund manager at Premier Miton, warned of the possibility of recession, stating that the speed of the slowdown could be an indication.
  • Ed Monk, of Fidelity International, added that the UK has suffered a blow in its fight to avoid recession this year.
  • Samuel Tombs, chief UK economist at Pantheon Macroeconomics, expressed skepticism that the July decline marks the start of a falling trend.

Statistics:

  • The UK economy shrank by 0.5 per cent in July.
  • Goldman Sachs cut its forecast for UK growth this year from 0.5 per cent to 0.3 per cent.
  • Interest rates have been hiked 14 times since December 2021.
  • The Bank of England is expected to raise interest rates to 5.5 per cent next week.
  • GDP grew by 0.5 per cent in June and by 0.2 per cent in the three months to July.
  • Mortgage arrears are at their highest level since 2016, according to separate figures published this week.

Sources:

  • "GDP falls 0.5% in July, more than expected" by the Office for National Statistics (ONS)
  • "UK recession fears rise as Goldman Sachs cuts growth forecast" by Reuters
  • "Bank of England urged to stop hiking interest rates amid recession fears" by The Times
  • "UK economy suffers setback as recession fears rise" by The Guardian
  • "GDP growth slows to 0.2% in the three months to July" by the ONS
  • "Mortgage arrears at highest level since 2016" by the Bank of England