UK Economic Output Slumps

This morning, the ONS showed that the UK economic output contracted 0.5% between June and July as strikes and wet whether caused major headwinds across the country. This marked a greater-than-expected contraction, given that the general market consensus had forecast a drop of 0.2%.

Today’s print indicates that the services sector fell half a percentage point as health activities plunged 3.4% with the ONS citing the cancellation of appointments and procedures. For example, the ONS said that “NHS England reported that 65,557 appointments and procedures were cancelled because of the senior doctors strike and 101,977 acute inpatient and outpatient appointments were cancelled because of the industrial action by junior doctors”. As we looked at yesterday, the ONS also indicated that there were some 281,000 working days lost sue to industrial action in July 2023 with most of the strike action being in the Education and Health and social work sectors. Next, the ONS citied a fall of 2.1% in the information and communication sector as a major drag behind the print. Indeed, notwithstanding how the poor weather over July kept Brits at bay for much of the month, computer programming services also slumped 3.4%.

Elsewhere, the country’s retail trade also fell 1.2% while production and manufacturing fell 0.7% and 0.8%, respectively. This comes as households and businesses adjust to monetary conditions being at their tightest levels since 2008, with expectations of further hikes to come.

Today’s print also marks a considerable downturn from the previous month-on-month print of 0.5%, which was helped by an upbeat film and TV industry, along with the popularity of live events especially given the sunny weather seen over June. Some good news though included that the sports activities and recreation activities industry rose 12.4%.

Last month, the Bank of England’s monetary policy report noted that while they are no longer forecasting a recession, output will continue to remain sluggish over the next two years. Such projections views are of course a considerable improvement from their assessments last year which pointed to eight consecutive quarters of economic contraction (starting in Q4 2022). As such, the UK economy – like many of its European and North American counterparts – is expected to see a ‘softer-than-expected’ landing. Focus now turns to the UK inflation print on 20 September ahead of the BoE’s interest rate decision on 21 September where money markets are implying that there is around a 78% chance of a 25bps hike priced in.