The UK economy shrank in July by 0.5% amid industrial action and extremely wet weather, official figures indicate, heightening fears of a recession in the second half of the year.
Analysts expected gross domestic product (GDP) to fall back by 0.2% but the Office for National Statistics said that strikes by junior doctors reduced health service activity, while retailers who had benefited from a warm June suffered in July, which was the sixth wettest on record.
However, the falls in output went beyond those sectors affected by strikes and rain, with all three major sectors – manufacturing, services and construction – contracting for the first time since the summer of last year.
Analysts at the consultancy Capital Economics warned that the UK might already be in recession. The chief UK economist, Paul Dales, said July’s drop would mean the Bank of England’s forecast of 0.4% growth in the third quarter of the year was unlikely to be met.
Figures released on Tuesday showed the labour market weakening after an increase in unemployment and a fall in vacancies, but average wage rises excluding bonuses were above the 6.8% inflation rate at 7.8%.
The shadow chancellor, Rachel Reeves, said the latest GDP figures were “dismal” and showed “the British economy remains hostage to the Conservatives’ low growth trap that is leaving working people worse off”.
The Treasury said it expected the strikes, which also hit the education sector, and the bad weather to play a part in dragging down the economy, adding that there were reasons for optimism.
Jeremy Hunt, the chancellor, said: “Only by halving inflation can we deliver the sustainable growth and pay rises that the country needs.
“But there are many reasons to be confident about the future. We were among the fastest in the G7 to recover from the pandemic and the IMF have said we will grow faster than Germany, France, and Italy in the long term.”
Business groups said their members were braced for a difficult autumn and winter coping with high interest rates and falling consumer demand.
The Institute of Directors said the contraction of computer and IT services was an omen of cuts to business investment by companies worried about the prospect of a recession.
