United Kingdom: Economic activity dissapoints in July
September 12, 2022
GDP expanded 0.2% in month-on-month seasonally-adjusted terms in July, which contrasted June's 0.6% decrease but undershot market expectations of 0.4% growth. Looking at the details of the release, July's pickup was driven by rebounds in the services and manufacturing sub-sectors. Within services, consumer-facing services grew at a particularly strong rate. Monthly GDP is now estimated to be 1.1% above its pre-Covid-19 levels.
On a rolling quarterly basis, GDP was stable in May–July, which was better than April–June’s 0.1% fall.
In early September, new Prime Minister Liz Truss announced a two-year cap on household energy bills, and a six-month cap on bills for businesses. Given energy bills were set to surge from October as Ofgem prepared to raise the energy price cap, these measures could cost around GBP 150 billion—6% of GDP. This will support economic activity towards the end of 2022 and into 2023.
Giving his view on the extra fiscal stimulus, Berenberg’s Salomon Fiedler said:
“Because the programme does not specifically target the most needy but is rather broad-based, it will be relatively expensive. […] It seems likely that this spending will be mostly debt-financed. But additional large-scale fiscal stimulus is problematic at a time when inflation is already extremely high. In addition, a general energy price freeze would remove incentives to reduce gas consumption. […] The measures may be politically astute for a new prime minister. But in economic terms, the government could have used less money more wisely.”