Economy shrinks by 0.3% sparking fears of recession
The UK’s economy shrank by 0.3% in August from July, sparking fears of a recession.
The latest fall comes after growth of just 0.1% in July. This was revised down from an initial estimate of 0.2%.
According to the latest figures from the Office for National Statistics, production fell by 1.8% in August after a fall of 1.1% in July (revised down from a fall of 0.3% in our previous publication) and was the main contributor to the fall in GDP; this fall was mainly because of a decrease of 1.6% in manufacturing.
Services also fell by 0.1% in August, after growth of 0.3% in July.
Health and social work activities, and arts, entertainment and recreation activities fell by 1.3% and 5% respectively and were the largest contributors to the small fall in services in August, partially offset by growth of 1.2% in professional, scientific and technical activities.
“The economy shrank in August with both production and services falling back, and with a small downward revision to July’s growth the economy contracted in the last three months as a whole,” said ONS chief economist Grant Fitzner.
“Oil and gas production fell as more scheduled North Sea summer maintenance took place than usual. Notable decreases were also seen across much of manufacturing.
“Health also contributed to the decline, with a drop in the number of hospital consultations and operations.
“Sports events too had a slower month after a strong July and many other consumer-facing services struggled with retail, hairdressers and hotels all faring relatively poorly.
“On the positive side, these falls were partially offset by stronger than usual summer performance from many professional services such as lawyers, accountants and architects.”
AJ Bell financial analyst Danni Hewson said: “It’s clear concern about rising prices is making people think twice about where they spend their money and how they spend their time.
“While July’s economic health was bolstered by a number of sporting events that got people out and about, August was coloured with caution. Households were terrified about what the winter ahead had in store, as they read headlines predicting horrific energy bills, and witnessed first-hand as inflation squeezed their spending power.
“Consumer-facing services endured a battle to get customers through the doors, with people cutting down on visits to the hairdressers, local pubs or coffee shops.
“The rising cost of energy coupled with warm weather pushed people to think hard about their energy use. Why turn on the lights when long summer days were more than capable of illuminating a room? Why switch on a fan or an oven when balmy evening breezes provided the perfect backdrop for alfresco dining?
“Rising prices, falling confidence and cooling temperatures seem to be the perfect recipe for recession and there’s every indication that in September the economy will have followed August’s path, helped along by a bank holiday detour.
“The Bank of England warned that recession was on the cards for the second half of the year and there’s little evidence government intervention on energy bills will do anything more than paper over the cracks.”