We’ll avoid a slump, say analysts as GDP slides

The economy shrank in July, figures this week are likely to show, but City experts remain confident that a slump will be avoided.

Analysts reckon a combination of wet weather denting retail sales and public sector strikes hit output, which is estimated to have shrunk by up to 0.4 per cent in the month.

It follows growth of 0.5 per cent in June, though this was flattered by comparison with May, when there was an extra Bank Holiday.

Samuel Tombs, chief UK economist at Pantheon Economics, said that while growth was ‘sluggish’, the economy was still not ‘sliding into recession’.

‘It should be clear from the breakdown of July’s GDP figures that the decline reflects one-off setbacks rather than a broad-based downturn.’ The rain may even have boosted demand elsewhere, Tombs added, pointing to the jump in box office takings for cinema blockbusters Barbie and Oppenheimer.

Investment bank Investec expects a drop of 0.4 per cent for July, while Pantheon Economics predicts a drop of 0.2 per cent.

The weakening economy may also encourage the Bank of England to pause its series of interest rate hikes. Governor Andrew Bailey said last week that he believed the base rate – now 5.25 per cent – was nearing the ‘top of the cycle’.

He expects inflation, which is currently running at 6.8 per cent, to fall ‘markedly’ by the year end.

The Office for National Statistics will report its latest GDP estimates on Wednesday. Any assessment of the economy will be complicated by its recent major revisions to GDP performance for 2020 and 2021.