The UK economy grew 0.2% in July 2022, representing a return to growth after a 0.6% contraction in June.
However, the figures came in below analyst expectations of 0.4% growth as the UK’s economic outlook remained relatively glum.
The Office of National Statistics (ONS) reported GDP was flat in the three months to July against the previous three months.
“July’s rather anaemic growth came in below expectations, a factor which will add to concerns that the UK is slow marching towards recession,” said AJ Bell financial analyst Danni Hewson.
“Despite the package of support for households, which has just been announced by the government, the cost of living crisis hasn’t magically disappeared.”
“Energy costs are just one part of the equation – food prices, fuel prices and pretty much every single service we use has gone up and, even if inflation doesn’t peak at those eyewatering levels we’d been warned of, budgets are still very tight.”
GDP growth in July was driven by a rise in the services sector of 0.4% after a 0.5% drop in June. Information and communication grew 1.5% and was the largest contributor to the services sector over the month.
Construction fell by 0.8% after a 1.4% decline in June, with the decrease solely driven by a 2.6% slide in repair and maintenance.
Production dropped 0.3% following a 0.9% fall in June, primarily due to a 3.4% decrease in electricity, gas, steam and air conditioning supply as consumers cut back on energy usage as a result of the cost of living crisis.
“It’s not surprising that the ONS flags up anecdotal evidence that demand for electricity fell in July,” said Hewson.
“Businesses and consumers have been making changes, cutting back, altering habits, preparing for those long winter days. High prices for materials like concrete and bricks continue to be a huge issue for the construction sector and it is interesting that repair work and maintenance have dragged the sector down.”
“People will try and make do if they’re worried about cash, hoping that putting repairs off until tomorrow will result in lower quotes as inflation cools.”
Analysts noted the energy price cap freeze introduced by Prime Minister Liz Truss last week might have stopped inflation barrelling towards its higher estimates.
However, it remains to be seen how much help the policy will prove as winter approaches and the cost of living crisis looms.
“Will the energy price freeze be enough to keep the economy chugging forward, or has intervention come too late to settle nerves?” said Hewson.
“Will consumers relax their tight hold on the purse strings enough now they’re no longer faced with the spectre of continually rising energy bills?”