Martin Beck

According to the EY ITEM Club, a broad-based decline in GDP across all three main sectors – services, construction, and industrial output – occurred for the first time since June 2022. This raises concerns about the economy’s performance for the rest of 2023 and into 2024.

Martin Beck, chief economic advisor to the EY ITEM Club, said the contraction in July was larger than the anticipated 0.2% decline.

Mr Beck noted: “The sectoral breakdown showed a 0.5% fall in services output accounted for much of the fall. A steep decline in health output was the main culprit here, reflecting the effect of strikes (the total number of working days lost in July was at a three-month high and 75% more than in June).

“A drag from unusually wet weather on retail spending may have also exaggerated services’ weakness. The wet weather probably also played a role in a 0.5% contraction in construction. Meanwhile, industrial output fell 0.7%, meaning all three main sectors shrank for the first time since June 2022.”

He continued: “The role of erratic factors in July’s weakness means the economy probably saw some bounce back in August. But it’s now looking less clear that GDP will expand meaningfully in Q3.

“Any growth is on course to be very modest, continuing the trend of near stagnation which has characterised the UK economy over the last 12 months. And the EY ITEM Club thinks that prognosis will remain broadly true over the rest of this year and into 2024.”

Mr Beck concluded: “On balance, the EY ITEM Club thinks a recession will be avoided. But the prospect of quarterly growth hovering only a little above zero won’t feel much different.”