UK sees only marginal GDP slowdown

The UK economy shrank in the second quarter by much less than economists had been forecasting, according to official figures published on Thursday.

David Sapsted

12 August 2022

The Office for National Statistics (ONS) said GDP dropped by just 0.1% between April and June, with a decline in health and social work activity being largely responsible as a result of NHS Covid-19 programmes shutting down as the pandemic receded.

"Health was the biggest reason the economy contracted as both the test and trace, and vaccine programmes were wound down, while many retailers also had a tough quarter," said Darren Morgan, director of economic statistics at the ONS.

"These were partially offset by growth in hotels, bars, hairdressers and outdoor events across the quarter, partly as a result of people celebrating the Platinum Jubilee."

Although the Bank of England has predicted recession will set in over the final quarter of the year, economists expect the economy has returned to growth in the current quarter.

Chancellor of the Exchequer Nadhim Zahawi commented: "Our economy showed incredible resilience following the pandemic and I am confident we can pull through these global challenges again.

"I know that times are tough and people will be concerned about rising prices and slowing growth, and that’s why I’m determined to work with the Bank of England to get inflation under control and grow the economy."

James Smith, developed markets economist at investment bank ING, said he expected July's GDP had rebounded to about 0.7% growth and that overall the economy would see about a half per cent bounce over Q3.

“A fall in fourth-quarter GDP now looks highly likely,” he added, "although the extent of the decline will depend on how the next prime minister responds."

Alpesh Paleja, lead economist at the Confederation of British Industry (CBI), agreed that the economy would return to growth in the third quarter and said the fall in activity over Q2 was widely expected, especially as there had been an extra holiday weekend in June to mark the Queen's jubilee.

But, he added, the current growth would not last. "The forthcoming hike in Ofgem’s energy price cap will push inflation to new highs, leading to a significant economic downturn.

"Vulnerable businesses and households will be squeezed further, so it’s good to see both leadership candidates and the current government signalling further support will be provided to those hit hardest.

“Implementing other pro-growth decisions now – for example, adding flexibility to the Apprenticeship Levy - will also pave the way for recovery beyond this crisis.”

Martin McTague, national chair of the Federation of Small Businesses, said that retailers were particularly concerned about the likelihood of a slowdown in consumer spending.

"With levels of fuel poverty skyrocketing, fuel and energy costs far higher than they were in the same quarter last year, and rent costs rising steadily, there is less left in people’s pockets for holidays, new clothes, meals out, and other discretionary spending, leading to lower sales for many small businesses," he said.

"The one per cent fall in the wholesale and retail trade over the quarter is deeply concerning, with supply chain disruption causing huge headaches and extra expense for businesses."

David Bharier, head of research at the British Chambers of Commerce, also saw the fall in household consumption as a reflection of the weakness in consumer confidence because of the mounting cost of living.

He added: "Business investment remains a serious challenge. While investment in construction has increased, other forms of investment, including for machinery and equipment, continue to fall."Related Articles