UK economy shrinks in July as GDP falls 0.5% – what it means for your money
THE UK economy shrunk by 0.5% in July, the latest figures from the Office for National Statistics (ONS) show.
It comes after the health sector was hit with strike action and retailers were impacted by the wet weather.
The GDP figures today come after a 0.5% increase in June, easing fears at the time that the country could fall in to recession.
Economists had been predicting a 0.2% decline for the month following the growth last month.
GDP measures the value of goods and services produced in the UK.
It also estimates the size of and growth in the economy.
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All three key areas of the economy – services, construction and production – declined in July, according to the ONS.
Overall, services fell by 0.5% in July, after a growth of 0.2% in June.
Consumer-facing services, like sports and recreation activities, showed no growth, the figures show.
While production output fell by 0.7% in July, and construction output decreased by 0.5%.
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Elsewhere, the retail and accommodation sectors also dipped as consumer sentiment was held back by poor weather.
Looking at the bigger picture though, GDP increased by 0.2% in the three months to July, with growth in all main sectors.
Services, production and construction also edged up slightly in the three months to July compared to the three months to April.
ONS director of economic statistics Darren Morgan said: "Our initial estimate for July shows that GDP fell; however, the broader picture looks more positive, with the economy growing across the services, production and construction sectors in the last three months.
"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 pointed out that manufacturing also fell back again after it rebounded in June as it recovered from May’s extra Bank Holiday.
Inflation fell to 6.8% in July, lower than the month before but still above the Bank of England's 2% target.
The news today comes ahead of August's inflation figures which will be announced next week.
Rising fuel prices in August are likely to lead to a blip in the latest inflation numbers, according to both Chancellor Jeremy Hunt and BoE governor Andrew Bailey.
Chancellor Jeremy Hunt 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.”
Alice Haine, personal finance analyst at Bestinvest, has warned that the UK should "brace" itself ahead of more wet weather this autumn.
She said: "With the weather able to deliver such a dampening effect on output, the UK must brace itself for further storms as the UK heads into the colder autumn and winter months."
Ms Haine explained that the economy has held up pretty well this year so far despite fears of recession.
She added: "Britain’s economy has remained resilient so far this year, despite the multiple threats posed to output by rapidly rising interest rate hikes, sticky inflation, persistent industrial action and the cost-of-borrowing crisis.
"The road ahead looks less forgiving, however, with interest rates now at their highest level in 15 years and expected to jump again by 25 basis points when the Monetary Policy Committee meets again later this month – a move designed to constrain demand and expenditure in the economy."
The Bank of England will meet again next week to set the base rate.
Below we explain what the GDP announcement means for your money and how you can protect your finances.
What does it mean for my money?
A healthy economy is one that is growing and not in recession.
Recession occurs if there are two consecutive quarters of GDP falling, the year is split into four three-month quarters.
The economy grew 0.2% in the three months to July, which means a recession was avoided.
Recessions are bad news because it usually means jobs will be lost and wages will stall.
It can cause businesses to go into administration or bust too.
This, in turn, means the government gets less tax, which could mean cuts to public services and benefits such as Universal Credit. Tax rates might go up too.
The UK last went into recession in 2020 after the coronavirus pandemic hit, shutting down large parts of the economy.
How to protect your finances
If you're worried about your finances, there are steps you can take to try and keep your cash safe.
Having an emergency savings pot is helpful in times of high inflation, to help cover any outgoings that might have increased unexpectedly.
You might consider asking for a pay rise at work, but there are no guarantees your company is in a position to offer one.
Be sure to make savings where you can - shop around for better deals on your car and home insurance, as well as broadband and mobile phone.
Save money by going to a cheaper supermarket, shopping for own-brand rather than premium products, and looking out for yellow-sticker bargains.
Make a budget and check your bank statements for any forgotten subscriptions you might be wasting money on.
Making extra cash in your spare time can help too, picking up a side hustle or selling your old clothes could give you a boost.
When money is tight, it can be tempting to ignore debts - but this will only make your financial situation worse.
Stay on top of what you owe and always repay priority debts.
There are also plenty of organisations where you can seek debt advice for free.
These include:
- National Debtline - 0808 808 4000
- Step Change - 0800 138 1111
- Citizens Advice - 0808 800 9060
You should also check what benefits you are eligible for.
Entitledto's free calculator works out whether you qualify for various benefits, tax credits and Universal Credit.
There is also emergency funding available for struggling households, which is dished out by local councils.
The Household Support Fund is designed to help those in most need with payments towards the rising cost of food, energy, and water bills.
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You could also get similar help from your council under the welfare assistance scheme.
Meanwhile, official figures released yesterday by the ONS revealed that wages are still rising at its fastest rate on record.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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