Large Fall in GDP in July May Herald a Quarterly Decline

Main points

• Monthly GDP fell by 0.5 per cent in July following growth of 0.5 per cent in June. This monthly figure was driven partially by a strong June performance but also by decreasing output in all three major sectors. The biggest fall in services output in July came from the health sub-sector, which was affected by industrial action; the largest fall in production came from falling manufacturing output, which has been on a downwards trend for over a year; and the biggest fall in construction output came from repair and maintenance work.
• GDP grew by 0.2 per cent in the three months to July relative to the previous quarter, slightly lower than we had forecast last month. We now forecast GDP to contract by 0.1 per cent in the third quarter of 2023, remaining broadly consistent with the longer-term trend of low, but stable, economic growth in the United Kingdom. That said, as persistently high inflation continues to squeeze household budgets, alongside the effects of the high cost of borrowing, demand will be curbed in the near term. As a result, service-sector output, in particular, may falter and drag down on GDP in the coming months. The risks to GDP at the moment thus continue to be skewed downside.

“Today’s data indicate that GDP fell by 0.5 per cent in July relative to June, generated partially by a strong June performance but also by decreasing services output in July, particularly in the health sub-sector which was affected by industrial action. More broadly, GDP grew by 0.2 per cent in the three months to July, driven by growth in manufacturing output relative to the previous three-month period.  It seems that, despite the forthcoming data revisions in the 2023 Blue Book, the low but stable growth profile for the United Kingdom remains the same.”

Paula Bejarano Carbo
Associate Economist, NIESR

For a complete forecast of the UK economy, please see our quarterly UK Economic Outlook, published last month.