The UK economy saw growth of 0.2% in July, following a sharp fall of 0.6% in the previous month, according to the Office for National Statistics (ONS)

The UK economy grew slower than expected in July as worker shortages and inflation weighed heavily on activity amid the growing risk of recession. 

According to the ONS, gross domestic product (GDP) rose by 0.2% in July, after a sharp fall of 0.6% in June 2022. Though 1.1% above pre-coronavirus levels, GDP was flat in the three months to July compared with the previous three months.

The services sector was the biggest contributor to growth, seeing a rise of 0.4%, following a 0.5% drop between May and June.

Yael Selfin, chief economist at KPMG UK, said: ‘The feeble 0.2% bounce back in July was driven by weak GDP in June due in part to the loss of working days from the Jubilee long weekend.

‘More concerning, July’s GDP remains below the level seen in May, pointing to an overall contraction over the first two months of summer.

‘This ties into a downbeat outlook for the UK economy which could see another shallow recession from the end of this year, driven by the ongoing squeeze on households’ income and a rising cost burden for businesses

‘While nearly £170bn worth of fiscal measures announced last week may be sufficient to avoid a deeper economic slump, these will be partly offset by tighter Bank of England monetary policy focused on combating the high levels of inflation.’

The figures come amid growing concerns over Britain’s economy as soaring inflation and rising costs weigh heavily on households and businesses. The Bank of England warned that the UK will likely fall into recession at the end of the year, which could last until early 2024.

The information and communication sector grew by 1.5%, the largest contributor to services growth in July. The main driver was computer programming, consultancy, and telecommunications.

Production fell by 0.3% after a fall of 0.9% in June, mainly because of a drop of 3.4% in electricity, gas, steam, and air conditioning supply.

Jake Finney, economist at PwC, said: ‘Looking beneath the headlines, it’s clear this positive growth rate was primarily led by the performance of the services sector. Two of the other main engines of economic growth – production and construction – contracted in July.

‘Despite today’s positive growth figures, our expectation is that the UK economy will contract in the third quarter of 2022, following its 0.1% contraction in the second quarter. This would mean that the UK enters a technical recession for the first time since lockdown restrictions ended.’

Following weeks of hustings and debate, the members of the Conservative party have elected Liz Truss as their party leader and new prime minister

The popular vote was won by home secretary Liz Truss with 57% of the vote with a share of 80,326 votes, while former chancellor Rishi Sunak took 43% at 60,345 votes.

In a short speech before MPs, Truss promised to govern as a Conservative for the next two years, prioritising cutting taxes and dealing with the energy crisis, long term energy supply issues, and National Health Service.

In earlier interviews, Truss said that she would set out her economic plans within the next week to address the energy crisis and cost of living issues.

The official handover will take place at Balmoral when the Queen invites Truss to form the new government following the resignation of Boris Johnson.

The new Cabinet will be confirmed in the next few days with key appointments likely to be confirmed late on Tuesday.

In contrast to her opponent Sunak, Truss has focused on tax cuts as a central plank of her policy.

Simon Rothenberg, a director at Blick Rothenberg, said: ‘Liz Truss has led with the promise of significant tax cuts such as the reversal of Rishi Sunak’s 1.25% National Insurance, likely to be targeted at basic rate taxpayers only. 

‘Truss is also said to be favouring a substantial increase to the basic rate threshold, possibly as high as £80,000 – a promise Boris Johnson led with during the 2019 Conservative Party leadership campaign but never materialised during his tenure. These will help, but they are not immediate fixes.

‘I expect a budget in the coming weeks with a lot of promises before this around helping households with energy prices and the cost-of-living crisis – help is urgently needed, and it will be at a very significant cost to HM Treasury.

‘There was little or no promise to help, in the immediate future, the businesses who are being crippled by the complete lack of any energy price cap – tax cuts (including stopping the proposed increase in corporation tax to 25%) and a stronger economy will help tomorrow, but they need help today.

‘Pubs, restaurants, shops, hairdressers, along with all other businesses, are receiving their energy bills which, in some cases, show over a 500% increase over the previous bills. This is before they head into winter and while temperatures are still mild.

‘Without any targeted support I fear our retail and hospitality sector will severely struggle over the winter months as households reduce their discretionary spend to afford their own increased prices.’

The package of tax cuts promised in Truss’ campaign appealed to Conservative voters but will be costly to implement without cutting public services to balance the books.

Adrian Young, a tax partner at Hurst, said: ‘Ultimately, the real challenge the new prime minister will face is to maintain public services while delivering tax cuts. The ones she proposed on the hustings alone have been costed at £30bn in some estimates. It was no doubt easy to make these promises as part of a plan to win the premiership.

‘However, the reality for Truss of managing the public finances in the current economic climate will be much more problematic.’