UK economy weaker than expected with sluggish manufacturing gain

Published Mon, Sep 12, 2022 · 02:31 PM

THE UK economy grew less than expected in July as industrial production and construction shrank.

The 0.2 per cent expansion followed a 0.6 per cent decline in June when the gross domestic product was curtailed by an extra public holiday to mark Queen Elizabeth II’s jubilee, the Office for National Statistics said on Monday (Sep 12).

The death of the queen and another holiday for her funeral on Sep 19 may be enough to tip the economy into recession in the current quarter, analysts at Nomura and Deutsche Bank said. Consumers and businesses are struggling under the weight of soaring inflation and energy bills, even with Prime Minister Liz Truss’s package of measures to freeze further increases in natural gas and electricity costs.

What growth there was in July was driven by information technology and consumer-facing services, which expanded 0.6 per cent. Part of that marked a bounceback from June when there was an extra holiday. Manufacturing grew less than expected in the month. Industrial production and construction both shrank for a second month, disappointing expectations for growth.

Key purchasing-management data show private-sector activity contracted in August, putting the economy on course for a quarter of anaemic growth.

A freeze on energy prices from October, announced by Truss last week, will reduce peak inflation and may be enough to stop the economy slipping into recession this year.

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However, the multi billion-pound stimulus is likely to force the Bank of England to keep interest rates higher for longer, which could lead to a contraction next year.

Investors are pricing in a half-point increase and potentially more on Sep 22, with the benchmark rate hitting almost 4.5 per cent by the middle of next year compared with the current 1.75 per cent. BLOOMBERG

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