United Kingdom: Economic activity growth eases to six-month low in July
GDP increased 0.1% month-on-month in seasonally-adjusted terms in July, slowing markedly from June’s 1.0% print and marking the worst reading since January. While output in both the services and manufacturing sectors flatlined in July, the construction sector contracted for a fourth consecutive month. Nevertheless, a rebound in production sector output ensured GDP grew for the sixth month running.
On a rolling quarterly basis, GDP growth fell to 3.6% in May–July, which was below April–June’s 4.8% expansion which had marked a seven-month high.
The economy looks set to slow from Q2’s strong rebound in Q3 and beyond, as a resurgence in Covid-19 cases since late June, and acute shortages of staff and inputs both weigh on activity.
On the reading and outlook, analysts at Berenberg said:
“After impressive gains since the start of the year, the UK recovery stalled in July. […] Should we worry about the negative surprise? Not much. Output in July fell just 2.1% short of its pre-pandemic peak of February 2020, having recovered most of the 24.6% plunge from February to April 2020 during the first Covid-19 lockdown and the partial reversal of the upswing in late 2020 during the second lockdown. The downside risks stemming from severe global supply-side issues, labor shortages and elevated inflation have materialized to some extent; however, UK fundamentals remain healthy and demand is strong. We expect near-term misses to be offset by stronger gains down the line.”