ONS GDP data: Economy expands 0.2% in July despite deepening cost-of-living squeeze

  • Gross domestic product (GDP) is estimated to have grown by 0.2% in July 2022 following a fall of 0.6% in June 2022
  • Looking at the broader picture, GDP was flat in the three months to July compared with the previous three months.
  • The services sector grew by 0.4% in July 2022 and was the main driver to the rise in GDP. However, both production and construction fell in July 2022, by 0.3% and 0.8% respectively.

Gettyimages 1316091485 WEB
Published: 12 Sept 2022 Updated: 12 Sept 2022

Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service, comments:

“Flattening economic growth in the three months to July was to be expected when you consider the immense challenges the country was facing as the fallout from the war in Ukraine and rising borrowing costs took its toll on the economy. The resulting rises in food, fuel and energy prices sent inflation soaring to a 40-year-high of 10.1% in July and forced households and businesses to reevaluate their expenditure.

“Despite this, there was slight GDP growth of 0.2% in July driven by the services sector, with the UK’s decision to host the Women’s Euro Championship and the Commonwealth Games delivering a positive boost to output. However, the production and construction sectors contracted in July - a reflection of the shifting economy as Britain really started to grasp the sheer scale of the energy crisis and the fact that price rises were not going to reverse any time soon.

“With warnings already in place that a very difficult winter lay ahead, it is only natural that demand was being constrained as households adjusted budgets and attempted to stockpile cash to prepare their finances.

“Just a week ago, the outlook for the winter seemed dire as gas and electricity bills were set to rise 80% from October 1 in line with the energy price cap – and jump again in January – with inflation potentially peaking above 22% at the start of 2023.

“However, this scenario was averted when new Prime Minister Liz Truss unveiled her energy plan last week with the decision to freeze annual energy bills at £2,500 for the typical household this winter and next providing household budgets with some respite.

“While this move won’t remove all the pain for household finances in the near term as energy prices remain significantly higher than a year ago and some people’s finances are already creaking under the strain – it will avert what would have been an extremely difficult situation for many households and a deep recess.

“With the two-year freeze in energy bills saving households £1,000 a year, the UK is expected to suffer a much milder recession than previously forecast, with inflation likely to peak in the fourth quarter several percentage points lower than feared.

“While the Bank of England is still expected to increase the base rate at its next Monetary Policy Committee meeting – which was delayed until September 22nd following the sad death of Queen Elizabeth II - it is hopeful that runaway inflation will be contained.

“However, what happens from here in terms of rate rises is unclear. While there was expectation the BoE might vote for an increase of up 0.75% before the energy plan announcement - the biggest rise since 1992 - some quarters expect that strategy to remain unchanged. This is because the new Government’s fiscal stimulus measures, including tax cuts, also have the potential to stimulate the economy at the very point that the BoE is trying to curb inflation – meaning higher rates could stay in place for longer.”

About Bestinvest

Bestinvest is a multi-award-winning, digital investment platform and coaching service for people who choose to make their own investment decisions but with the support of tools, insights and qualified professionals. It offers access to thousands of funds, investment trusts, ETFs and shares through a range of account types, including an Individual Savings Account, a Junior ISA for children, a Self-Invested Personal Pension and General Investment Account.

Alongside providing investors access to an extensive choice of investments, Bestinvest also offers a wide range of ready-made portfolios for people seeking a managed approach that suits their risk profile, saving them the need to select and monitor their funds themselves. These include a highly competitively priced ‘Smart’ range that invests through low-cost passive funds, as well as an ‘Expert’ range that invests with ‘best-of-breed' managers.

Bestinvest provides investors with a unique range of new features to help people better manage their long-term savings, including free investment coaching from qualified financial planners, low-cost fixed fee advice packages and advanced tools to help people plan goals and monitor progress towards achieving them.

Bestinvest is part of Evelyn Partners, the UK’s leading wealth management and professional services group created by the merger of Tilney and Smith & Williamson in 2020. Evelyn Partners is trusted with the management of £59.1 billion of assets (as of 31 December 2023) by its clients, who are private investors, family trusts, entrepreneurs, businesses, charities, financial advisers and other professional intermediaries.

Bestinvest is a trading name of Evelyn Partners Investment Management Services Limited, which is authorised and regulated by the Financial Conduct Authority.

For more information, please visit www.bestinvest.co.uk