UK Economy Contracts Amidst Wet Weather & Strikes, Impacts on Economic Activity

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July saw a larger-than-expected contraction in the UK economy due to adverse weather and strikes impacting spending and activity.

According to data published by the Office for National Statistics on Wednesday, gross domestic output fell by 0.5% between June and July, surpassing the 0.2% decline predicted by economists polled by Reuters.

In July, services output decreased by 0.5%, with strikes in the healthcare sector contributing to the decline. Manufacturing production and construction also reported declines, with both sectors experiencing decreases of 0.8%.

The ONS noted that the wet weather negatively affected retail and construction output.

During the three months leading up to July, a less volatile measure of economic performance showed a 0.2% increase compared to the previous three months, indicating a continued weak performance since late 2021. 

Darren Morgan, the ONS’s director of economic statistics, commented on the data, saying, “In July, industrial action by healthcare workers and teachers negatively impacted services, and it was a weaker month for construction and retail due to the poor weather.” He also added, “Manufacturing fell back following its rebound from the effect of May’s extra Bank Holiday.”

On a more positive note, a busy schedule of sporting events and an increase in theme park visits slightly boosted the economy, according to the ONS. 

Sterling declined by 0.3% on Wednesday, trading at $1.2446. While expectations of future interest rate hikes have decreased in recent days, traders still anticipate a rate increase by the Bank of England to 5.5% on September 21. However, most investors now believe this will be the final increase.